<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-72665
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANSYS DIAGNOSTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2835 33-0316510
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
25200 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 770-9381
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN K. SCHULTHEIS
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ANSYS DIAGNOSTICS, INC.
25200 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 770-9381
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
PATRICK ARRINGTON, ESQ. RODD M. SCHREIBER, ESQ.
ELLEN S. BANCROFT, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
MATTHEW L. STEIMEL, ESQ. 333 W. WACKER DRIVE, SUITE 2100
MARRIE K. STONE, ESQ. CHICAGO, ILLINOIS 60606
BROBECK, PHLEGER & HARRISON LLP (312) 407-0700
38 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(949) 790-6300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 26, 1999
2,500,000 SHARES
ANSYS LOGO
COMMON STOCK
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This is the initial public offering of ANSYS Diagnostics, Inc., and we are
offering 2,500,000 shares of our common stock. We anticipate that the initial
public offering price will be between $10.00 and $12.00 per share. Our common
stock has been approved for quotation on the Nasdaq National Market under the
symbol "ASDI."
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INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discounts and commissions................... $ $
Proceeds to ANSYS........................................ $ $
</TABLE>
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
ANSYS Diagnostics, Inc. has granted the underwriters the right to purchase up to
375,000 additional shares of common stock to cover any over-allotments.
---------------------
Vector Securities International, Inc. Sutro & Co. Incorporated
PROSPECTUS DATED , 1999
<PAGE> 3
[INSIDE FRONT COVER]
Markets Addressed by ANSYS
[Picture of Worker]
Caption: Workforce Testing
[Picture of emergency room procedure]
Caption: Emergency Room
[Picture of police car]
Caption: Law Enforcement
[Picture of laboratory testing procedure]
Caption: Laboratory Testing and Research
[Picture of Semi truck]
Caption: Department of Transportation
In this prospectus, "ANSYS," "we," "us" and "our" refer to ANSYS
Diagnostics, Inc. The use of the term "our" in phrases such as "our products" is
not intended to infer that we hold any intellectual property or other ownership
rights to the TesTcup, TesTstik, XtraAMP and SCIP product lines. Unless
otherwise indicated, all information in this prospectus gives effect to a
1.2-for-1 stock split of our common stock effected in April 1999, and assumes
that:
- the initial public offering price will be $11.00 per share;
- we will redeem all of our outstanding Series A redeemable preferred stock
for cash;
- we will convert all of our outstanding Series B convertible preferred
stock into 3,641,328 shares of our common stock based on the assumed
initial public offering price;
- we will reincorporate ANSYS in Delaware in May 1999; and
- the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding options.
ANSYS(R), DRUGSTAT(R), DRUGSTAT RA(TM), LTD-Opiate(TM), ON-SITE(R), ON-SITE
Alcohol(R), SPEC(R), SPEC-NEWS(TM), TOXI-LAB(R) and TOXI-NEWS(TM) are trademarks
of ANSYS. TesTcup(R), TesTcup ER(TM), TesTcup 5 M2K(TM) and TesTstik(TM) are
trademarks of Roche Diagnostic Systems, Inc. XtraAMP(TM) and SCIP(TM) are
registered trademarks of Molecular Innovations, Inc. This prospectus also refers
to trademarks of other companies.
<PAGE> 4
[Inside gatefold]
Disposable Diagnostic Products from ANSYS Diagnostics, Inc.
[Picture of TesTcup]
Caption: TesTcup is a self-contained, disposable urine collection and testing
device designed to detect the presence of up to five drugs of abuse
simultaneously. TesTcup provides easily interpreted results in approximately
five minutes and is designed to be simple to use.
[Picture of ON-SITE Alcohol]
Caption: On-Site Alcohol is a self-contained, easy to use, disposable,
pocket-sized device designed to detect the presence of ethanol in urine or
saliva in approximately two minutes.
[Picture of SPEC]
Caption: SPEC solid phase extraction products use proprietary membrane
technology for preparing samples for trace analysis.
[Picture of Toxi-Lab]
Caption: The TOXI-LAB drug screening system is a unique, bench-top, thin layer
chromatography system designed to detect over 500 drugs and drug byproducts.
[Picture of TesTstik]
Caption: TesTstick is a self-contained, easy to use, disposable dipstick
designed to detect the presence of a single drug of abuse in approximately three
minutes.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in this
prospectus. Because this is only a summary, it does not contain all of the
information that may be important to you. You should read the entire prospectus
carefully. You should consider the information under "Risk Factors" and in our
financial statements and the notes relating to these financial statements,
together with the information included elsewhere in this prospectus, before
deciding to invest in the shares of our common stock.
OUR BUSINESS
We develop, manufacture and market drug testing products and specialty
laboratory and research products. Our drug testing products detect the presence
of drugs of abuse and alcohol, primarily in on-site testing applications. Our
specialty laboratory and research products are used in the preparation of
experimental samples for further analysis, as well as for the separation and
detection of nucleic acids (DNA and RNA). In addition to our current products,
we also have several products under development, both internally and in
conjunction with third parties. All of our products utilize our core
competencies in product design, engineering and manufacturing.
We currently manufacture twelve on-site drug testing products, all of which
are self-contained, disposable and easy to use. These products are designed to
yield highly accurate results in less than five minutes and are intended to be
cost-effective. Applications for these products include pre-employment
screening, random employee testing, government mandated testing, parole and
probation monitoring and hospital/emergency room drug testing. We also offer a
laboratory-based drug testing product that detects more than 500 drugs and drug
byproducts in urine, blood, tissue and other specimens. In addition, we are
developing additional drug testing products that will enable physicians to
monitor their patients' compliance with a prescribed therapeutic drug regimen.
Our on-site and laboratory drug testing products address the market for
products that analyze blood, urine, saliva and other specimens to detect the
presence of and monitor certain substances, to diagnose diseases and other
medical conditions, or to determine the chemical and microbiological
constituents of the specimen. The United States drugs of abuse testing segment
of this market was approximately $628 million in 1996, and is estimated to grow
to approximately $900 million by 2002.
We have collaborated with Roche Diagnostic Systems, Inc. for more than six
years, and we continue to work with Roche both contractually and informally on
developing new on-site drug testing products. For the on-site drug testing
market, we manufacture the TesTcup and TesTstik family of products, as well as
ON-SITE Alcohol. We have an exclusive contractual relationship with Roche, under
which we manufacture the TesTcup product line through January 2003 and the
TesTstik product line through October 2002. Roche owns all rights to and is
responsible for selling and marketing the TesTcup and TesTstik product lines.
In the specialty laboratory and research products market, we manufacture
and sell solid phase extraction products and nucleic acid separation products.
Solid phase extraction is a technique for removal of a target substance from a
liquid onto a solid surface and the subsequent release of that substance for
analysis. Nucleic acid separation involves isolating nucleic acids from other
soluble contaminants. Nucleic acids, including DNA and RNA, are the fundamental
regulatory molecules of life. We are currently co-developing rapid nucleic acid
separation and detection products to expand our product line. Our specialty
laboratory and research products are marketed primarily to clinical and
environmental testing laboratories, pharmaceutical and biotechnology companies,
and DNA testing and research organizations.
ANSYS was incorporated in 1988 in California and will be reincorporated in
Delaware in May 1999. Our executive offices are located at 25200 Commercentre
Drive, Lake Forest, California 92630, and our telephone number is (949)
770-9381.
3
<PAGE> 6
THE OFFERING
Common stock offered....................... 2,500,000 shares
Common stock to be outstanding after this
offering................................... 8,058,472 shares(1)
Use of proceeds............................ For redemption of preferred stock
and payment of cumulative
dividends; for repayment of
indebtedness; for the acquisition
of complementary businesses,
products and technologies; and
for working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol..... ASDI
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $6,589 $6,447 $8,126 $10,698 $18,964 $4,427 $5,495
Gross profit.......................... 4,588 4,178 5,068 5,599 9,261 2,263 2,727
Operating expenses.................... 3,117 3,364 3,204 3,649 4,749 1,076 1,223
Operating income...................... 1,471 814 1,864 1,950 4,512 1,187 1,504
Net income............................ $ 971 $ 494 $1,201 $ 1,206 $ 2,691 716 902
Earnings per share(2):
Basic............................... $ 0.34 $ 0.14 $ 0.46 $ 0.54 $ 1.33 $ 0.36 $ 0.46
Diluted............................. $ 0.15 $ 0.08 $ 0.19 $ 0.20 $ 0.45 $ 0.12 $ 0.15
Weighted average shares
outstanding(2):
Basic............................... 2,307 2,307 2,230 1,901 1,890 1,881 1,880
Diluted............................. 6,039 6,076 6,057 5,864 5,942 5,898 6,047
Pro forma earnings per share(2):
Basic............................... $ 0.47 $ 0.16
Diluted............................. $ 0.44 $ 0.14
Pro forma weighted average shares
outstanding(2):
Basic............................... 5,737 5,727
Diluted............................. 6,147 6,253
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,686 $ 426 $23,690
Working capital....................................... 5,274 3,014 26,510
Total assets.......................................... 13,205 10,945 33,778
Total long-term debt.................................. 1,842 1,842 --
Total stockholders' equity............................ 8,697 6,437 31,112
</TABLE>
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(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and does
not include 956,620 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 1999, at a weighted average exercise
price of $1.70 per share. See "Management -- Stock Option Plans" and Notes 9
and 11 of Notes to Consolidated Financial Statements.
(2) See Notes 10 and 11 of Notes to Consolidated Financial Statements for
information regarding the determination of per share calculations.
(3) Pro forma to give effect to: (a) the payment of all undeclared cumulative
dividends on our preferred stock; (b) the redemption of all of our
outstanding Series A redeemable preferred stock; and (c) the conversion of
all of our outstanding Series B convertible preferred stock, all of which
will occur upon consummation of this offering.
(4) Pro forma as described in footnote (3) and as adjusted to give effect to the
receipt and application of the estimated net proceeds from the sale of the
2,500,000 shares offered by this prospectus. See "Use of Proceeds."
4
<PAGE> 7
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU
SHOULD CAREFULLY READ AND CONSIDER THE FOLLOWING RISK FACTORS BEFORE PURCHASING
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN
TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN
SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
WE DEPEND ON REVENUES FROM SALES TO ROCHE AND OUR OPERATING RESULTS WOULD BE
ADVERSELY AFFECTED IF SALES TO ROCHE WERE TO DECLINE.
We derive a substantial portion of our revenues and earnings from the sale
of TesTcup, TesTstik and ON-SITE Alcohol to Roche. These products together
accounted for approximately 17% of our net sales during 1996, 42% during 1997,
65% during 1998 and 69% during the three months ended March 31, 1999. If Roche
were to stop purchasing any of these products from us, either due to lack of
consumer demand or otherwise, our business, financial condition and results of
operations would be materially and adversely affected. We expect our revenues
and profitability in the foreseeable future to depend substantially on our
relationship with Roche in general and the TesTcup and TesTstik products in
particular.
Roche owns or has licensed from other parties all patent, intellectual
property and other ownership rights to the TesTcup and TesTstik product lines.
We have no rights to these product lines except our right to manufacture these
products for Roche under our exclusive manufacturing agreements, which expire
commencing in 2002. Roche may use another vendor to manufacture the TesTcup
and/or TesTstik product lines if we do not produce a sufficient quantity of
products which meet their specifications. Roche also owns the rights to any new
versions of TesTcup and TesTstik which we may develop in the future. If Roche
terminates or decides not to renew or extend our manufacturing agreements, our
revenues will decline significantly and our business would be materially and
adversely affected.
ROCHE CONTROLS THE MARKETING OF THE TESTCUP AND TESTSTIK PRODUCT LINES, AND WE
DEPEND ON THEIR EFFORTS FOR THE SUCCESS OF THESE PRODUCTS.
Our agreements with Roche give Roche complete control over all aspects of
marketing the TesTcup and TesTstik product lines, including product pricing,
sales force composition and promotional activities. Under these agreements, we
also must offer Roche the first opportunity to exclusively market any and all
new antibody-based drugs of abuse products which we develop. Roche has full
responsibility for and complete control over the introduction, sales and
marketing of the TesTcup and TesTstik product lines, including the recently
introduced TesTcup ER. As a result, the successful marketing of the TesTcup and
TesTstik product lines, as well as other products that we may develop, will
depend on the
5
<PAGE> 8
efforts of Roche and is beyond our effective control. We cannot be certain that:
(1) Roche will continue to devote sufficient resources to market the TesTcup or
TesTstik product lines effectively; (2) that Roche will not reduce their
purchases of the TesTcup or TesTstik product lines, either due to a lack of
consumer demand or otherwise; or (3) that Roche will market any of these
products at prices that can achieve market acceptance. Roche is not required to
purchase any minimum amounts of our products, and we do not have the right to
sell or market these products directly or indirectly. Our business, financial
condition and results of operations will be materially and adversely affected if
Roche does not devote sufficient resources to marketing the TesTcup or TesTstik
product lines or if Roche's marketing efforts are not successful.
THE FAILURE OF SOLE SOURCE SUPPLIERS TO PROVIDE KEY RAW MATERIALS COULD
ADVERSELY AFFECT THE PRODUCTION OF OUR PRODUCTS AND COULD HARM OUR CUSTOMER
RELATIONSHIPS.
We use certain essential raw materials in our manufacturing processes which
are currently available only from approved sole source suppliers. These raw
materials include nitrocellulose membranes, glass fiber membranes and certain
liquid reagents. We have experienced a shortage of nitrocellulose membranes in
the past and the shortage of any of our key raw materials could disrupt our
production and reduce our sales. We do not have any long-term supply agreements
with any of these suppliers, and we have not qualified alternative suppliers for
any of these raw materials. If we were to lose any of our current suppliers of
these materials, we would have to qualify a new supplier for that material. We
would also have to repeat product testing using the raw materials from the new
supplier and may have to seek additional regulatory approvals. It is possible
that these raw materials may not continue to be available on acceptable terms,
or at all, or that alternative suppliers will be available. Any delays or
reductions in product shipments by our suppliers could damage our relationships
with our customers. Further, a significant increase in the price of one or more
of these raw materials could materially and adversely affect our gross margins
or operating results.
IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, OUR FINANCIAL PERFORMANCE COULD BE
ADVERSELY AFFECTED.
Over the past few years, our business has grown rapidly and we have
significantly expanded our operations to accommodate this growth. This expansion
has placed a significant strain on our limited personnel, management, operating
systems and other resources. Our net sales increased 77.3% over the past year,
from $10.7 million in 1997 to $19.0 million in 1998. This rapid growth has:
- made it difficult to forecast supply requirements accurately;
- required us to implement new and upgraded operational and financial
systems, procedures and controls; and
- increased the responsibilities of management personnel.
To manage growth effectively, we must continue to implement and improve our
operational, financial and management information systems. We must also hire,
train and manage additional employees. Our future financial performance could be
materially and adversely affected if we are unable to manage our growth
effectively.
6
<PAGE> 9
WE DEPEND ON KEY PERSONNEL WHO ARE INSTRUMENTAL TO OUR BUSINESS AND ARE NOT
SUBJECT TO EMPLOYMENT AGREEMENTS.
Due to the specialized nature of our business, we are highly dependent on
the continued service of our executive officers and other key management,
scientific and technical personnel, particularly Stephen K. Schultheis, our
Chairman, President and Chief Executive Officer, Steven P. Sidwell, our
Executive Vice President -- Operations, and Dr. Dennis D. Blevins, our Vice
President -- Research and Development. We do not have employment agreements with
any of our officers or key employees. The loss of any of these persons could
adversely affect our manufacturing operations, efficiency, product quality, and
research and development efforts. Our future success will also depend in large
part upon our ability to continue to attract, retain and motivate qualified
scientific and technical personnel with advanced degrees, and technical research
and manufacturing skills. The competition for qualified personnel is intense. If
we cannot attract, retain and motivate such qualified personnel, our business
will be adversely affected.
OUR CONTINUING EFFORTS TO INCREASE AUTOMATION MAY BE COSTLY, TIME-CONSUMING AND
MAY NOT BE SUCCESSFUL.
We are currently automating certain portions of our assembly lines. This
automation is expensive and may not ultimately improve our operating
efficiencies or manufacturing capacity. This automation involves a number of
risks, including:
- automation is costly because much of our equipment must be custom made
and delays are beyond our control;
- automation is likely to increase responsibilities for management
personnel;
- automation can result in quality control issues;
- necessary qualification and validation processes may delay the
implementation of automation; and
- automation requires the hiring, training and managing of highly skilled
employees to operate our automated facilities.
We may not succeed in automating our manufacturing facility in a timely
manner, at a commercially reasonable cost, or at all. Any resulting delays or
increased down time could adversely affect our business, financial condition and
results of operations.
THE LOSS OF OUR PRINCIPAL FACILITY COULD ADVERSELY AFFECT OUR BUSINESS.
We manufacture all of our products at a single facility in Lake Forest,
California. A disaster such as an earthquake or fire that damages this facility
could interrupt our manufacturing process, disrupt our business and adversely
affect our revenues and profitability. Any damage to our facility could also
cause significant delays and require re-certification of our facility under the
FDA's Quality System Regulations and under state regulations. Such certification
could be time-consuming and costly, without any guarantee of obtaining
recertification.
7
<PAGE> 10
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS COULD ADVERSELY AFFECT THE PRICE
OF OUR COMMON STOCK.
Our quarterly operating results have fluctuated and are likely to continue
to fluctuate due to a number of factors, many of which are not within our
control. Because many of our manufacturing costs are fixed, any significant
declines in our sales volume or sales revenue could cause our future operating
results to be below the expectations of securities analysts and/or investors. If
that happens, our business and the trading price of our common stock could be
adversely affected.
Factors that could affect our operating results also include the following:
- the resources Roche dedicates to the marketing of products we develop and
manufacture for Roche;
- ANSYS' and Roche's ability to develop, introduce, market and gain market
acceptance for new products and product enhancements in a timely manner;
- changes in pricing policies by us, Roche, suppliers or competitors;
- the availability of raw materials used to manufacture our products;
- our ability to accurately forecast demand and inventory requirements;
- the timing of sales to key customers or a decline in sales to a key
customer;
- the introduction of new products or product enhancements or technical
innovations by competitors;
- our ability to expand capacity or achieve further manufacturing
efficiencies;
- the timing and increased costs associated with increased sales and
marketing, and research and development activities; and
- changes in government regulation of our products or the legal status or
procedural requirements for employment drug testing.
THE EFFECTS OF COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL
CONDITION.
We compete with numerous companies that manufacture disposable drug tests
that can be conducted on-site, such as in the workforce. We are aware of
approximately twenty companies that currently manufacture drugs of abuse tests.
We also compete with companies that manufacture products used in clinical
settings, such as hospitals and reference laboratories. We expect competition to
increase due to the increased acceptance of drug testing and technological
advancements in diagnostic testing products. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share. We
believe independent reference and hospital laboratories currently perform the
majority of diagnostic tests. We expect that these laboratories will compete
vigorously to maintain their competitive position. To achieve broad market
acceptance for the products we manufacture, we, together with Roche, will need
to demonstrate that our products are an attractive alternative to laboratory
testing. We believe the principal factors for competition in our industry
include accuracy, reproducibility, ease of use, distribution capabilities and
price. Some of our competitors may:
- have larger, more established sales and marketing, distribution and
service organizations;
8
<PAGE> 11
- offer broader product lines and test for more substances;
- have greater name recognition;
- offer discounts as a competitive tactic; and
- have invested in competing technologies that may be more effective or
more commercially attractive than our technologies.
We cannot be certain that we will have the technical expertise, or the
financial, marketing or distribution resources, either alone or in conjunction
with Roche, to compete effectively in the future.
THE LOSS OF ANY KEY DISTRIBUTOR COULD AFFECT OUR REVENUES AND THE MARKET
ACCEPTANCE OF OUR PRODUCTS.
We rely upon third party distributors, as well as our own sales force, to
distribute and market many of our new and existing products. If we lose one or
more of our key distributors and cannot arrange suitable alternatives, our sales
will likely decline. We may not be able to enter into new distribution or
marketing agreements on satisfactory terms, or at all. We cannot be certain that
our distributors will devote sufficient resources to effectively market and sell
the products we manufacture, that they will devote sufficient resources in the
future to market and sell any new products we manufacture, or that they will
market these products at prices that can achieve market acceptance. In addition,
our distributors may give higher priority to the products of similar suppliers
or their own products, thus reducing their efforts to sell products we
manufacture. If any of our distributors become unwilling or unable to promote,
market and sell products we manufacture, our business could be adversely
affected.
OUR FUTURE SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO DEVELOP, INTRODUCE AND
GAIN MARKET ACCEPTANCE OF NEW PRODUCTS.
We believe our revenue growth and future operating results will depend, in
part, on our ability to complete the development of new products and
successfully introduce them. We have recently invested significant resources
into the development of TesTstik 2, TesTstik 3 and TesTcup 5 M2K. We cannot be
sure that any of these products will achieve broad market acceptance. It is
possible that Roche may decide not to launch TesTstik 2 or TesTstik 3, or not to
market or sell any of these products, and we have no right to market or sell any
of these products ourselves. We are also in the late stages of development of
the XtraAMP sample preparation product. To successfully introduce these and
other new products, we must, among other things:
- undertake time-consuming and costly development, manufacturing and other
activities;
- obtain necessary regulatory clearance or approvals in a timely manner;
- establish and maintain reliable, cost-efficient, high-volume
manufacturing capacity for these products;
- ensure that our products comply with government and regulatory testing
guidelines;
- develop new products or modify existing products to detect the presence
of new substances; and
- obtain approval from our strategic partners.
9
<PAGE> 12
Each stage of this process involves inherent difficulties, which we may not
be able to overcome. If our product development efforts are not successful, our
business, financial condition and results of operations would be materially and
adversely affected.
WE MUST COMPLY WITH VARIOUS GOVERNMENT REGULATIONS AND CANNOT BE ASSURED OF
OBTAINING FURTHER REGULATORY APPROVALS.
We cannot market or commercially sell new products unless the FDA has
exempted them from its market clearance requirements or, if the products are not
exempt, until the FDA either clears a notification under Section 510(k) of the
Federal Food, Drug and Cosmetic Act or approves an application for premarket
approval. The process of obtaining either 510(k) clearance or premarket approval
can be lengthy, expensive and uncertain. All of our drug testing products and
some of our specialty laboratory and research products are currently marketed
pursuant to 510(k) notifications. Some of our existing products have been
modified since they received 510(k) clearance. It is possible that the FDA might
not agree with our decision that the modification did not require 510(k)
clearance. If the FDA were to disagree, we might have to stop marketing those
products or other penalties could apply. It is also possible that future
modifications or enhancements to existing products will require clearance of new
510(k) notifications, which we or our strategic partners may not be able to
obtain. Some new products may, however, require the more time consuming and
costly premarket approval. Government regulations typically depend heavily on
interpretation and could be applied retroactively. Future interpretations by the
FDA or other regulatory bodies could adversely affect our business. If
previously unknown problems with a cleared or approved product are discovered,
we or our strategic partners may be required to restrict the product's marketing
or withdraw the product from the market entirely and other penalties could
apply. Our business could be materially and adversely affected by the loss of
previously obtained clearances or the failure to comply with existing or future
regulatory requirements, or the inability to obtain a 510(k) clearance or
premarket approval.
We are also subject to the FDA's Quality System Regulations because we
manufacture medical devices marketed in the United States. We are subject to
routine inspection by the FDA and other federal and state regulatory agencies
for compliance with Quality System Regulations, Medical Device Reporting
requirements and other applicable regulations. We cannot be certain that we will
remain in compliance with all of such regulations. Noncompliance with applicable
requirements can result in, among other things:
- warning letters;
- fines;
- injunctions;
- civil penalties;
- recall or seizure of products;
- total or partial suspension of production;
- failure of the government to grant 510(k) clearance or premarket approval
for devices;
- withdrawal of marketing clearances or approvals; and
- criminal prosecution.
10
<PAGE> 13
We are also subject to various other federal and state regulations, and
numerous environmental and safety laws and regulations, including those
governing the use and disposal of hazardous materials. We may incur significant
costs in the future in complying with FDA mandates and other governmental
regulations.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS.
Our ability to compete effectively depends in part upon our ability to
develop and maintain the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We hold two United States
patents relating to our ON-SITE Alcohol product and are currently pursuing three
pending United States patent applications for other existing products. In
addition, we have filed two counterpart patent cooperation treaty applications
as a first step in obtaining counterpart foreign patents. We cannot be certain
that we will receive any additional patents. Our existing or future patents may
not protect us from competitors with similar technology, particularly if they
develop similar technology independently, or if they design around our
intellectual property or the intellectual property of our strategic partners. It
is also possible that our existing or future patents could still be challenged,
invalidated or circumvented. In addition, protection of our intellectual
property may be unavailable or limited in a number of foreign countries. If we
are not able to adequately protect our technology, our competitors can more
easily offer similar products.
Roche, the owner of all of the intellectual property and other ownership
rights to the TesTcup and TesTstik product lines, including certain
modifications to these products, may not aggressively protect its patents or
licenses to these product lines.
We may be required to litigate to enforce our or our strategic partners'
intellectual property rights or protect our trade secrets. We may also need to
litigate to determine the validity and scope of proprietary rights of others,
including our customers. Any time we are involved in litigation, we will likely
incur significant costs. Litigation can also divert management's efforts and
other resources from our business. In addition, litigation could result in the
issuance of an injunction which could require us or our strategic partners to
withdraw certain products from the market or redesign certain products currently
offered for sale or under development. We may also be required to obtain a
license to continue producing a product, which may not be available on
reasonable terms, or at all. See "Business -- Intellectual Property."
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS, OR AT ALL.
If our capital requirements are materially different from those currently
planned, we may need additional capital sooner than anticipated. Our future
capital requirements will depend on many factors, including:
- the level of product sales;
- increased research and development expenses to fund new product
development and product line expansion;
- the progress and costs of our ongoing automation;
- potential acquisitions of complementary businesses, products and
technologies;
- increased sales and marketing expenses; and
- increased inventory levels to accommodate potential increases in net
sales.
11
<PAGE> 14
Additional financing may not be available on acceptable terms, or at all.
If adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our products, expand our sales and marketing
programs, take advantage of future opportunities or respond to competitive
pressures and our business, financial condition and results of operations could
be materially and adversely affected. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our stockholders will
be reduced. In addition, the new equity securities may have rights, preferences
and privileges senior to our common stock.
WE DO NOT HAVE SIGNIFICANT DIRECT SALES CAPABILITIES WHICH COULD IMPACT OUR
ABILITY TO EXPAND OUR BUSINESS.
We currently have limited resources in direct sales, and in the marketing
and distribution of our products. We may consider expanding our direct sales
force to market future products ourselves if we have the right to do so. If we
decide to distribute new products directly, we will have to invest in additional
sales and marketing resources, particularly to add more field sales personnel.
Our direct sales, marketing and distribution efforts may not be successful, and
revenue from these efforts may not exceed our increased expenses.
WE MAY HAVE PRODUCT LIABILITY EXPOSURE NOT COVERED BY INSURANCE.
The manufacture and sale of medical diagnostic devices entails an inherent
risk of product liability claims. We face financial exposure to product
liability claims if the use of our products results in an improper diagnosis.
Potential product liability claims may exceed the amount of our insurance
coverage or may be excluded from coverage under the terms of the policy. Product
liability insurance is expensive, and we cannot be certain that our existing
insurance can be renewed at an acceptable cost, or at all, or that it would
adequately protect us against these types of claims.
WE MAY EXPERIENCE UNANTICIPATED WARRANTY EXPOSURE FOR WHICH WE DO NOT HAVE
RESERVES.
We may face warranty exposure which could adversely affect our results of
operations. Our products typically carry a one year warranty against defects in
materials and workmanship. For the TesTcup and TesTstik product lines, we are
responsible for all costs, expenses and consequential damages under our
contracts with Roche for all product recalls, returns and defects attributable
to manufacturing. Based on our prior warranty experience, we have not
established any reserves for the liability associated with product warranties.
Accordingly, any unforeseen warranty exposure could materially and adversely
affect our business, financial condition and results of operations.
WE ARE SUBJECT TO YEAR 2000 RISKS FOR WHICH WE MAY NOT BE PREPARED AND WHICH
COULD ADVERSELY AFFECT OUR BUSINESS.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies may need to be upgraded to comply with such year
2000 requirements or risk system failure or
12
<PAGE> 15
miscalculations, potentially causing disruptions of normal business activities.
We rely on our systems and applications to operate and monitor all major aspects
of our business, including our financial, information and manufacturing systems.
Although we believe our internal infrastructure is year 2000 compliant, we
cannot know for certain all of the problems that may arise until the turn of the
century. Any disruption in our internal infrastructure could cause shipment
errors, make it difficult to forecast adequately, harm our customer
relationships and in general, adversely affect our business. We also rely on
computer systems of other entities, both domestic and international, for the
accurate exchange of data. These entities include our customers, suppliers,
creditors and financial organizations. Even if our internal systems are not
affected by the year 2000 issue, our business could be materially disrupted by
year 2000 problems within these other entities. We have not determined what
costs will be incurred in connection with our third party relationships, but
such costs could be substantial. We do not currently have any contingency plans
for unforeseen year 2000 issues.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK.
There has been no public market for our common stock prior to this
offering. We cannot predict the extent to which investor interest in our common
stock will lead to the development of an active trading market. If a public
market does not develop, it could limit our investors' ability to sell their
shares.
THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The stock markets have experienced extreme price and volume fluctuations in
the past, particularly in the diagnostic and specialty laboratory and research
products markets. The trading prices of securities of many companies in these
markets have been especially volatile, often for reasons unrelated to the
operating performance of the specific companies. These broad market and industry
factors may adversely affect the trading price of our common stock, regardless
of our actual operating performance. If the market price of our common stock
declines, we may be subject to costly and time consuming securities class action
litigation. Any such litigation could have a material adverse effect on our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR COMMON STOCK TO
DECLINE.
If our stockholders sell a substantial amount of our common stock,
including shares issuable upon exercise of outstanding options, in the public
market following this offering, the market price of our common stock could
decline. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have 8,058,472 shares of
common stock outstanding. Of these shares, the 2,500,000 shares sold in this
offering will be freely tradeable in the public market. In addition, 18,400
shares will be available for sale in the public market 90 days following the
date of this prospectus. All of the remaining 5,540,072 shares will be eligible
for future sale in the public market 180 days from the date of this prospectus,
upon expiration of lock-up agreements between the stockholders and the
underwriters.
The holders of 5,498,112 shares of our common stock have certain rights
with respect to registration of those shares for sale in the public market. We
also intend to file a
13
<PAGE> 16
registration statement covering the sale of 1,956,620 shares of our common stock
granted or authorized for grant under our employee benefit plans. See
"Management -- Stock Option Plans" and "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Certain provisions of our certificate of incorporation, bylaws and Delaware
law could make it difficult for a third party to acquire us, even though an
acquisition might be beneficial to our stockholders. These provisions of our
certificate of incorporation and bylaws and of Delaware law may have the effect
of:
- delaying, deterring or preventing a change in control;
- discouraging bids for our common stock at a premium over the market
price;
- adversely affecting the market price of our common stock; and
- adversely affecting voting and other rights of our stockholders.
See "Description of Capital Stock" for a more complete discussion of these
provisions.
OUR INSIDERS WILL STILL HAVE CONTROL OVER ALL MATTERS REQUIRING A STOCKHOLDER
VOTE UPON COMPLETION OF THIS OFFERING.
Following this offering, Ronald J. Hall, one of our directors, and his
affiliates, will beneficially own an aggregate of 47.3% of our common stock, or
45.2% if the underwriters' over-allotment option is exercised in full. Our
directors, executive officers and their affiliates as a group will beneficially
own approximately 65.7% of our common stock upon completion of this offering, or
approximately 63.0% if the underwriters' over-allotment option is exercised in
full. As a result, our insiders will still have control over all matters
requiring a stockholder vote after this offering, including the election of a
majority of the Board of Directors and approval of significant corporate
transactions. Such control could prevent or delay a change in control which
might be in the best interests of our stockholders.
14
<PAGE> 17
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify
forward-looking statements. These statements include, but are not limited to,
statements concerning:
- our ability to maintain or expand strategic relationships;
- our ability to achieve cost reductions and automate our manufacturing
processes;
- our ability to develop, introduce and gain market acceptance of new
products in a timely manner;
- the timing and availability of products under development;
- our ability to commercialize new products;
- our ability to provide sufficient customer support;
- the adequacy of our capital resources;
- our ability to address year 2000 issues adequately;
- future fluctuations in our operating expenses;
- our future capital expenditures and cash resources; and
- the use of the net proceeds from this offering.
Our actual results could differ materially from those expressed or implied
by these forward-looking statements as a result of various factors, including
the risk factors described above and elsewhere in this prospectus. We undertake
no obligation to update publicly any such forward-looking statements for any
reason, or to update the reasons actual results could differ materially from
those anticipated in such forward-looking statements, even if new information
becomes available in the future.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to ANSYS from the sale of the 2,500,000 shares of common
stock offered by ANSYS are estimated to be approximately $24.7 million ($28.5
million if the underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by ANSYS.
We intend to use approximately $2.3 million of the net proceeds of this
offering to redeem all of our outstanding Series A redeemable preferred stock
and to pay all cumulative dividends that have accrued on all of the outstanding
shares of our preferred stock through the closing of this offering. We also plan
to use approximately $1.8 million of the net proceeds of this offering to repay
our bank debt, which was used for tenant improvements associated with our
relocation to our new facilities in February 1998. Interest on the bank debt
accrues at a fixed rate of 8.42% and the bank debt matures on June 30, 2005.
We may use a portion of the net proceeds of this offering to acquire
businesses, products and technologies that are complementary to ours. As of the
date of this prospectus, we are not engaged in any agreements or negotiations
regarding any material acquisition. We intend to use the balance of the net
proceeds of this offering for general corporate purposes, including the funding
of working capital requirements, increasing research and development
expenditures and investing in automation equipment for our manufacturing
facility. We currently have an option to purchase our facility in February 2000
for an aggregate purchase price of $5.6 million. We may use a portion of the net
proceeds of this offering to purchase this facility.
Pending the use of the net proceeds of this offering, we intend to invest
the net proceeds in short-term, investment grade, interest bearing securities.
Other than as described above, we have no specific plans for the net proceeds of
this offering. Our management will have broad discretion concerning the
allocation and use of a significant portion of the net proceeds of this offering
which we receive. The principal purposes for conducting this offering are to
create a public market for our common stock and to increase our financial
flexibility and working capital.
The foregoing represents our best estimate of the allocation of the net
proceeds from the sale of the common stock offered by this prospectus, based
upon the current state of our business operations, our current plans for
expansion and the current economic and industry conditions. This estimate is
subject to reallocation among the categories stated above. The amount or timing
of actual expenditures will depend on numerous factors, including our
profitability, the availability of alternative financing, our business
development activities and competition.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to finance the growth and
development of our business. Therefore, we do not anticipate that we will
declare or pay any cash dividends on our common stock in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of our
Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements, restrictions under any existing
indebtedness and such other factors as the Board of Directors deems relevant. In
addition, our bank debt contains restrictions on the payment of cash dividends
without the lender's prior written consent.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of ANSYS at March 31,
1999. The Pro Forma column gives effect to the payment of all undeclared
cumulative dividends on our preferred stock, the redemption of all of our
outstanding Series A redeemable preferred stock and the conversion of all of our
outstanding Series B convertible preferred stock into shares of our common
stock. The Pro Forma As Adjusted column additionally reflects the issuance of
2,500,000 shares of common stock offered by this prospectus and the receipt and
application of the estimated net proceeds of this offering, assuming an initial
public offering price of $11.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by ANSYS. This
table should be read in conjunction with our Consolidated Financial Statements
and the Notes thereto included elsewhere in this prospectus. See "Use of
Proceeds" and "Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1999(1)
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total long-term debt...................... $ 1,842 $1,842 $ --
Stockholders' equity:
Preferred stock, $.0001 par value;
5,000,000 shares authorized; 18,000
shares issued and outstanding,
actual; no shares issued and
outstanding, pro forma and pro forma
as adjusted.......................... -- -- --
Common stock, $.0001 par value;
30,000,000 shares authorized;
1,917,144 shares issued and
outstanding, actual; 5,558,472 shares
issued and outstanding, pro forma;
8,058,472 shares issued and
outstanding, pro forma as adjusted... -- 1 1
Additional paid-in capital.............. 1,965 1,564 26,239
Retained earnings....................... 6,732 4,872 4,872
------- ------ -------
Total stockholders' equity........... 8,697 6,437 31,112
------- ------ -------
Total capitalization............ $10,539 $8,279 $31,112
======= ====== =======
</TABLE>
- -------------------------
(1) Excludes 956,620 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 1999, at a weighted average exercise
price of $1.70 per share. See "Management -- Stock Option Plans" and Notes 9
and 11 of Notes to Consolidated Financial Statements.
17
<PAGE> 20
DILUTION
The net tangible book value of ANSYS as of March 31, 1999 was approximately
$8.2 million, or $4.27 per share of common stock. Net tangible book value per
share represents the amount of ANSYS' total tangible assets less total
liabilities divided by the number of shares of common stock outstanding as of
March 31, 1999. After giving effect to the payment of all undeclared, cumulative
dividends on our preferred stock, the redemption of all of our outstanding
Series A redeemable preferred stock and the conversion of all of our outstanding
Series B convertible preferred stock into shares of common stock, the pro forma
net tangible book value of ANSYS as of March 31, 1999 was approximately $5.9
million, or $1.07 per share of common stock. Without taking into account any
other changes in pro forma net tangible book value other than to give effect to
the sale by ANSYS of the 2,500,000 shares of common stock offered by this
prospectus and the receipt and application of the net proceeds of this offering,
the pro forma net tangible book value of ANSYS as of March 31, 1999, would have
been $31.0 million, or $3.85 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $2.78 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $7.15 per share to investors purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...... $11.00
Net tangible book value per share as of March 31,
1999............................................ $ 4.27
Pro forma effect of the transactions referenced
above........................................... (3.20)
------
Pro forma net tangible book value per share as of
March 31, 1999.................................. 1.07
Increase per share attributable to new investors... 2.78
------
Pro forma net tangible book value per share after
this offering...................................... 3.85
------
Dilution per share to new investors.................. $ 7.15
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the difference between the number of shares of common stock purchased from
ANSYS, the total consideration paid and the average price per share paid by
existing stockholders and by new investors, assuming an initial public offering
price of $11.00 per share and before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by ANSYS:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders.............. 5,558,472 69.0% $ 1,875,000 6.4% $ 0.34
New investors.......... 2,500,000 31.0 27,500,000 93.6 11.00
--------- ----- ----------- -----
Total............. 8,058,472 100.0% $29,375,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options. As of March 31, 1999, options
to purchase 956,620 shares of our common stock were outstanding at a weighted
average exercise price of $1.70 per share. To the extent that these options are
exercised, new investors will experience further dilution. See
"Management -- Stock Option Plans" and Notes 9 and 11 of Notes to Consolidated
Financial Statements.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1997
and 1998 and for each of the years ended December 31, 1996, 1997 and 1998 was
derived from, and should be read in conjunction with, ANSYS' Consolidated
Financial Statements and Notes thereto audited by McGladrey & Pullen, LLP,
independent auditors, included elsewhere herein. Selected consolidated financial
data as of December 31, 1994, 1995 and 1996 and for the years ended December 31,
1994 and 1995 has been derived from ANSYS' unaudited consolidated financial
statements not included herein. The selected consolidated financial data as of
and for the three months ended March 31, 1999 and 1998 have been derived from
ANSYS' unaudited consolidated financial statements included elsewhere in this
prospectus. Such unaudited consolidated financial information has been prepared
by ANSYS on a basis consistent with ANSYS' annual audited consolidated financial
statements and, in the opinion of management, contains all normal recurring
adjustments necessary for a fair presentation of the consolidated financial
position and results of operations for the applicable periods. Interim results
are not necessarily indicative of future results. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $6,589 $6,447 $8,126 $10,698 $18,964 $4,427 $5,495
Cost of goods sold............. 2,001 2,269 3,058 5,099 9,703 2,164 2,768
------ ------ ------ ------- ------- ------ ------
Gross profit................... 4,588 4,178 5,068 5,599 9,261 2,263 2,727
Operating expenses:
Research and development..... 663 561 434 773 700 174 207
Selling, general and
administrative............. 2,454 2,803 2,770 2,876 4,049 902 1,016
------ ------ ------ ------- ------- ------ ------
Total operating expenses..... 3,117 3,364 3,204 3,649 4,749 1,076 1,223
------ ------ ------ ------- ------- ------ ------
Operating income............... 1,471 814 1,864 1,950 4,512 1,187 1,504
Interest income (expense)...... (100) 20 55 59 (46) (4) (9)
------ ------ ------ ------- ------- ------ ------
Income before income taxes..... 1,371 834 1,919 2,009 4,466 1,183 1,495
Provision for income taxes..... 400 340 718 803 1,775 467 593
------ ------ ------ ------- ------- ------ ------
Net income..................... $ 971 $ 494 $1,201 $ 1,206 $ 2,691 $ 716 $ 902
====== ====== ====== ======= ======= ====== ======
Earnings per share(1):
Basic........................ $ 0.34 $ 0.14 $ 0.46 $ 0.54 $ 1.33 $ 0.36 $ 0.46
Diluted...................... $ 0.15 $ 0.08 $ 0.19 $ 0.20 $ 0.45 $ 0.12 $ 0.15
Weighted average shares
outstanding(1):
Basic........................ 2,307 2,307 2,230 1,901 1,890 1,881 1,880
Diluted...................... 6,039 6,076 6,057 5,864 5,942 5,898 6,047
Pro forma earnings per
share(1):
Basic........................ $ 0.47 $ 0.16
Diluted...................... $ 0.44 $ 0.14
Pro forma weighted average
shares outstanding(1):
Basic........................ 5,737 5,727
Diluted...................... 6,147 6,253
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, -----------------------------------
------------------------------------------- PRO PRO FORMA
1994 1995 1996 1997 1998 ACTUAL FORMA(2) AS ADJUSTED(3)
------ ------ ------ ------ ------- ------- -------- --------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $1,535 $1,247 $1,784 $1,515 $ 3,176 $ 2,686 $ 426 $23,690
Working capital.............. 1,553 2,242 3,120 3,002 5,053 5,274 3,014 26,510
Total assets................. 4,041 3,668 4,855 6,893 11,891 13,205 10,945 33,778
Total long-term debt......... -- -- -- -- 1,894 1,842 1,842 --
Total stockholders' equity... 2,609 3,083 3,973 4,957 7,664 8,697 6,437 31,112
</TABLE>
- -------------------------
(1) See Notes 10 and 11 of Notes to Consolidated Financial Statements for
information regarding the determination of per share calculations.
(2) Pro forma to give effect to: (a) the payment of all undeclared cumulative
dividends on our preferred stock; (b) the redemption of all of our
outstanding Series A redeemable preferred stock; and (c) the conversion of
all of our outstanding Series B convertible preferred stock, all of which
will occur upon consummation of this offering.
(3) Pro forma as described in footnote (2) and as adjusted to give effect to the
receipt and application of the estimated net proceeds from the sale of the
2,500,000 shares offered by this prospectus. See "Use of Proceeds."
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE
NOTES RELATING TO THESE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
ANSYS was organized in 1988 to acquire the Analytical Systems division of
Marion Laboratories, Inc. Since our inception, we have financed our working
capital requirements primarily from cash provided by operations. In 1995, we
completed the repayment of indebtedness incurred in connection with the
acquisition from Marion Laboratories.
We commenced our collaborative relationship with Roche in 1992, and began
developing products for the on-site drug testing markets. We believe on-site
testing represents the principal opportunity for growth in the drug testing
market. In 1991, we introduced our first on-site product, ON-SITE Alcohol, a
self-contained, disposable, pocket-sized test for the detection of ethanol in
urine or saliva. TesTcup, introduced in 1995, and TesTstik, introduced in 1997,
were developed in collaboration with Roche as disposable, rapid screening tests
for certain drugs of abuse in urine. We manufacture both of these products for
Roche under exclusive agreements. Our revenue growth during the last three
fiscal years has resulted primarily from increased sales of on-site drug testing
products to Roche and has been driven by increased demand for existing on-site
diagnostic products, as well as by new product introductions. During 1996, 1997,
1998 and the three months ended March 31, 1999, our sales of on-site drug
testing products (including our proprietary product, ON-SITE Alcohol, which is
also distributed by Roche) accounted for 17%, 42%, 65% and 69% of our total net
sales, respectively. Substantially all of our sales of on-site drug testing
products were to Roche during each of the past three fiscal years and the three
months ended March 31, 1999. The balance of our revenue during these periods was
derived from sales of TOXI-LAB and SPEC products, and to a lesser extent, sales
of nucleic acid separation products to Promega Corporation. We expect to
continue to be substantially dependent on Roche for our net sales and
profitability for the foreseeable future.
Roche paid us development fees for customer sponsored research and
development in the amount of $96,000 in 1993 in connection with the development
of the initial TesTcup product, and a total of $60,000 in 1996 and $20,000 in
1997 in connection with the development of the initial TesTstik product. We
accounted for these fees as revenue. Pursuant to our contractual agreements with
Roche, these development fees were not refundable and were not subject to any
future performance obligations by either party. No further development fees are
due to us under our agreements with Roche. ANSYS sponsored all other research
and development activities for the years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1999. While we perform substantially all of
our own research and development, we have, from time to time, engaged third
parties to conduct discrete research and development projects.
TOXI-LAB, our first laboratory-based drug testing product, was introduced
by our predecessor company in 1978. TOXI-LAB is a broad spectrum drug screening
system that uses our proprietary membranes. We introduced SPEC, our first
specialty laboratory and research product, in 1990. In addition, we began
manufacturing nucleic acid separation
21
<PAGE> 24
products for Promega in 1996. Since 1997, we have also been developing rapid
nucleic acid separation and detection products in conjunction with Molecular
Innovations.
RESULTS OF OPERATIONS
The following table sets forth certain income statement items expressed as
a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Gross profit.......................... 62.3 52.3 48.8 51.1 49.6
Operating expenses:
Research and development............ 5.3 7.2 3.7 3.9 3.8
Selling, general and
administrative................... 34.1 26.9 21.3 20.4 18.5
Total operating expenses.............. 39.4 34.1 25.0 24.3 22.3
Operating income...................... 22.9 18.2 23.8 26.8 27.3
Interest income (expense)............. 0.7 0.6 (0.2) (0.1) (0.1)
Income before income taxes............ 23.6 18.8 23.6 26.7 27.2
Provision for income taxes............ 8.8 7.5 9.4 10.5 10.8
Net income............................ 14.8 11.3 14.2 16.2 16.4
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Net Sales. Net sales for the three months ended March 31, 1999 were $5.5
million compared to $4.4 million for the same period in 1998, representing an
increase of 24.1%. The $1.1 million increase in net sales was primarily
attributable to a 177.4% increase in unit sales of TesTcup during the three
months ended March 31, 1999 compared to the same period in 1998. This increase
was partially offset by a 12.9% decrease in the per unit price of TesTstik as a
result of contractual volume pricing concessions to Roche, as well as a 26.0%
decrease in the unit sales of TesTstik over the same period. This decrease in
unit sales reflects the inclusion of large initial orders of TesTstik in the
first quarter of 1998 related to the introduction of the product in October
1997.
Gross Profit. Gross profit for the three months ended March 31, 1999 was
$2.7 million compared to $2.3 million for the same period in 1998, representing
an increase of 20.5%. As a percentage of net sales, gross profit decreased to
49.6% for the three months ended March 31, 1999 compared to 51.1% for the same
period in 1998. This decrease in gross profit as a percentage of net sales was
primarily due to the decrease in the per unit price of TesTstik referred to
above.
Research and Development Expense. Research and development expense
primarily consists of payroll and related expenses, material expenses and
facility costs associated with our development of new technologies and products.
Research and development expense for the three months ended March 31, 1999 was
$207,000 compared to $174,000 for the same period in 1998, representing an
increase of 19.0%. As a percentage of net sales, research and development
expense decreased slightly to 3.8% for the three months ended March 31, 1999
from 3.9% for the same period in 1998.
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<PAGE> 25
Selling, General and Administrative Expense. Selling, general and
administrative expense primarily consists of compensation and related expenses
for sales and marketing, technical support, executive, accounting and
administrative personnel, travel expenses, advertising and product promotion
costs, insurance costs, facilities costs, and accounting, legal and other
general corporate expenses. Selling, general and administrative expense for the
three months ended March 31, 1999 was $1.0 million compared to $902,000 for the
same period in 1998, representing an increase of 12.6%. This increase in
selling, general and administrative expense was primarily due to increased
compensation expense related to additional administrative personnel. As a
percentage of net sales, selling, general and administrative expense decreased
to 18.5% for the three months ended March 31, 1999 from 20.4% for the same
period in 1998. This decrease resulted from the fixed nature of a substantial
portion of our operating expenses and higher sales volume during the three
months ended March 31, 1999.
Interest Income (Expense). Interest expense for the three months ended
March 31, 1999 was $9,000 compared to $4,000 for the same period in 1998,
representing an increase of 125.0%. The increase in interest expense was
attributable to increased borrowings related to the purchase of equipment and
leasehold improvements associated with the completion of our new corporate
headquarters and manufacturing facility.
Provision for Income Taxes. Provision for income taxes for the three months
ended March 31, 1999 was $593,000 compared to $467,000 for the same period in
1998. The increase in provision for income taxes was due to our increased
profitability.
Net Income. Net income for the three months ended March 31, 1999 was
$902,000 compared to $716,000 for the same period in 1998, representing an
increase of 26.0%. As a percentage of net sales, net income increased to 16.4%
for the three months ended March 31, 1999 compared to 16.2% for the same period
in 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Sales. Net sales for the year ended December 31, 1998 were $19.0
million compared to $10.7 million for 1997, representing an increase of 77.3%.
The $8.3 million increase in net sales was primarily attributable to unit sales
increases of our on-site drug testing products, principally a 667.2% increase in
unit sales of TesTstik, reflecting a full year of sales of this product in 1998.
The increase in net sales was also attributable to a lesser extent to a 63.9%
increase in unit sales of TesTcup.
Gross Profit. Gross profit for the year ended December 31, 1998 was $9.3
million compared to $5.6 million for 1997, representing an increase of 65.4%. As
a percentage of net sales, gross profit decreased to 48.8% in the year ended
December 31, 1998 compared to 52.3% for 1997. The decrease as a percentage of
net sales reflects an increasing percentage of total net sales of on-site drug
testing products, which generally carry lower gross margins than our laboratory
products.
Research and Development Expense. Research and development expense for the
year ended December 31, 1998 was $700,000 compared to $773,000 for 1997,
representing a decrease of 9.4%. As a percentage of net sales, research and
development expense decreased to 3.7% for the year ended December 31, 1998 from
7.2% for 1997. We anticipate that research and development expense will increase
significantly in future periods, both in dollar amount and as a percentage of
net sales, as we begin to implement a more active product development strategy.
We anticipate that initial increases in research
23
<PAGE> 26
and development expense will consist primarily of increased labor costs and
supplies to enhance and expand our current product lines. Substantially all of
the anticipated increases in research and development expense are at
management's discretion.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the year ended December 31, 1998 was $4.0 million
compared to $2.9 million for 1997, representing an increase of 40.8%. The
increase in selling, general and administrative expense was due to increased
compensation expense associated with the growth of our workforce. As a
percentage of net sales, selling, general and administrative expense decreased
to 21.3% for the year ended December 31, 1998 from 26.9% for 1997. The decrease
as a percentage of net sales was due to the effective use of our infrastructure
to support higher volumes of net sales, the realization of improved operating
efficiencies and proportionately lower selling expenses associated with
increased sales of products marketed by Roche.
Interest Income (Expense). Interest expense for the year ended December 31,
1998 was $46,000 compared to interest income of $59,000 for 1997, reflecting our
increased borrowings during 1998 for the purchase of equipment and leasehold
improvements in our new corporate headquarters and manufacturing facility, in
which we occupied in February 1998.
Provision for Income Taxes. Provision for income taxes for the year ended
December 31, 1998 was $1.8 million compared to $803,000 for 1997. The increase
in provision for income taxes was due to our increased profitability.
Net Income. Net income for the year ended December 31, 1998 was $2.7
million compared to $1.2 million for 1997, representing an increase of 123.1%.
As a percentage of net sales, net income increased to 14.2% for the year ended
December 31, 1998 from 11.3% for 1997.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales. Net sales for the year ended December 31, 1997 were $10.7
million compared to $8.1 million for 1996, representing an increase of 31.7%.
The $2.6 million increase in net sales was primarily attributable to unit sales
increases of our on-site drug testing products, principally a 149.8% increase in
unit sales of TesTcup, and to a lesser extent, initial sales of TesTstik, which
was introduced in October 1997.
Gross Profit. Gross profit for the year ended December 31, 1997 was $5.6
million compared to $5.1 million for 1996, representing an increase of 10.5%. As
a percentage of net sales, gross profit decreased to 52.3% in the year ended
December 31, 1997 compared to 62.3% for 1996. The decrease as a percentage of
net sales reflects an increasing percentage of total net sales of on-site drug
testing products, which generally carry lower gross margins than our laboratory
products. The decrease as a percentage of net sales also reflects certain raw
material and production process issues that occurred in the second quarter of
1997. These issues related to greater than expected variability in our
nitrocellulose membranes for our TesTcup and TesTstik product lines, as well as
production difficulties associated with the early ramp-up of the TesTcup
manufacturing process. Although the quality of nitrocellulose membranes is
inherently inconsistent, we implemented quality control procedures in 1997 which
have enabled us to detect these inconsistencies earlier in the manufacturing
process and to implement any necessary adjustments.
24
<PAGE> 27
Research and Development Expense. Research and development expense for the
year ended December 31, 1997 was $773,000 compared to $434,000 for 1996,
representing an increase of 78.1%. As a percentage of net sales, research and
development expense increased to 7.2% for the year ended December 31, 1997 from
5.3% for 1996. The increase in research and development expenses was due to
expense associated with the development of the TesTstik product that was
introduced in October 1997.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the year ended December 31, 1997 was $2.9 million
compared to $2.8 million for 1996, representing an increase of 3.8%. As a
percentage of net sales, selling, general and administrative expense decreased
to 26.9% for the year ended December 31, 1997 from 34.1% for 1996. The decrease
as a percentage of net sales was due to the effective use of our infrastructure
to support higher volumes of net sales, the realization of improved operating
efficiencies, and proportionately lower selling expenses associated with
increased sales of products marketed by Roche.
Interest Income (Expense). Interest income for the year ended December 31,
1997 was $59,000 compared to $55,000 for 1996, representing an increase of 7.3%.
Provision for Income Taxes. Provision for income taxes for the year ended
December 31, 1997 was $803,000 compared to $718,000 for 1996. The increase in
the provision for income taxes was due to our increased profitability. The
Internal Revenue Service has notified us that it intends to examine our 1996
income tax return and certain of our other financial records. The examination
has not yet begun and, accordingly, we are not able to assess the nature or
extent of this inquiry.
Net Income. Net income for each of the years ended December 31, 1997 and
1996 was $1.2 million. As a percentage of net sales, net income decreased to
11.3% for the year ended December 31, 1997 from 14.8% for 1996.
25
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables present quarterly results of operations, in dollar
amounts and as a percentage of net sales, for the last nine quarters, that have
been derived from the consolidated financial statements of ANSYS. The
information has been prepared by us on a basis consistent with our audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the information for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
1997 1998 1999
-------------------------------------- -------------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $2,400 $2,395 $2,551 $3,352 $4,427 $4,597 $4,883 $5,057 $5,495
Gross profit................ 1,426 1,087 1,356 1,730 2,263 2,307 2,471 2,220 2,727
Operating expenses:
Research and
development............. 173 178 215 207 174 163 179 184 207
Selling, general and
administrative.......... 732 705 694 745 902 991 1,216 940 1,016
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 905 883 909 952 1,076 1,154 1,395 1,124 1,223
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income............ 521 204 447 778 1,187 1,153 1,076 1,096 1,504
Interest income (expense)... 18 26 7 8 (4) (14) (14) (14) (9)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes..................... 539 230 454 786 1,183 1,139 1,062 1,082 1,495
Provision for income
taxes..................... 214 99 181 309 467 482 417 409 593
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income.................. $ 325 $ 131 $ 273 $ 477 $ 716 $ 657 $ 645 $ 673 $ 902
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per share:
Basic..................... $ 0.14 $ 0.05 $ 0.12 $ 0.23 $ 0.36 $ 0.32 $ 0.32 $ 0.33 $ 0.46
Diluted................... $ 0.05 $ 0.02 $ 0.05 $ 0.08 $ 0.12 $ 0.11 $ 0.10 $ 0.11 $ 0.15
AS A PERCENTAGE OF NET SALES:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit................ 59.4 45.4 53.2 51.6 51.1 50.2 50.6 43.9 49.6
Operating expenses:
Research and
development............. 7.2 7.4 8.4 6.2 3.9 3.5 3.7 3.6 3.8
Selling, general and
administrative.......... 30.5 29.5 27.3 22.2 20.4 21.6 24.9 18.6 18.5
Total operating
expenses.............. 37.7 36.9 35.7 28.4 24.3 25.1 28.6 22.2 22.3
Operating income............ 21.7 8.5 17.5 23.2 26.8 25.1 22.0 21.7 27.3
Interest income (expense)... 0.8 1.1 0.3 0.2 (0.1) (0.3) (0.3) (0.3) (0.1)
Income before income
taxes..................... 22.5 9.6 17.8 23.4 26.7 24.8 21.7 21.4 27.2
Provision for income
taxes..................... 9.0 4.1 7.1 9.2 10.5 10.5 8.5 8.1 10.8
Net income.................. 13.5 5.5 10.7 14.2 16.2 14.3 13.2 13.3 16.4
</TABLE>
Our quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future based on a number of factors, not all of
which are in our control. For example, during the second quarter of 1997, we
experienced a decline in gross profit largely as a result of raw material and
production process problems. See "Risk Factors -- The Failure of Sole Source
Suppliers to Provide Key Raw Materials Could Adversely Affect the Production of
Our Products and Could Harm Our Customer Relationships" and "Risk
Factors -- Fluctuations In Our Quarterly Operating Results Could Adversely
Affect the Price of Our Common Stock."
26
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity for ANSYS has been cash generated from
operations and borrowings under our revolving credit facility and secured term
note payable.
Cash flows from operating activities were $1.1 million, $625,000, $2.9
million and $710,000 for the years ended December 31, 1996, 1997 and 1998, and
the three months ended March 31, 1999, respectively. Our accounts receivable and
inventory have increased in each of 1996, 1997, 1998 and 1999, primarily due to
increased product sales. Cash inflows from net income plus noncash expenses and
the effect of increased accounts payable have been adequate to fund this growth.
During the year ended December 31, 1998 and the three months ended March 31,
1999, expenditures for equipment and leasehold improvements at our new
manufacturing and corporate headquarters facility, where we commenced occupancy
in February 1998, were $2.2 million and $440,000, respectively. Expenditures for
leasehold improvements were financed by a seven-year term loan in the principal
amount of $2.0 million, which bears interest at the rate of 8.42% per annum and
is secured by our accounts receivable, inventories, equipment and intangible
assets. We intend to use a portion of the proceeds of this offering to repay all
outstanding indebtedness under our term loan. We also have a revolving line of
credit of $1.0 million to provide for short-term financing, which bears interest
at the lender's prime rate plus 0.125% per annum. At December 31, 1998, we were
in violation of one of the negative covenants under this line of credit which
relates to the stock redemptions effected by us. The lender has, however,
subsequently waived this violation. We had no outstanding balance under this
line of credit at December 31, 1998 or March 31, 1999. Our current line of
credit expires in May 1999; however, we have received a letter of intent from
the lender to extend the line of credit until May 2001, subject to the execution
of satisfactory documentation. Notwithstanding this letter of intent, it is
possible that we may not be able to extend this line of credit on acceptable
terms, or at all. In addition, we have advised the lender concerning the
redemption of all of our outstanding Series A redeemable preferred stock, the
conversion of all of our Series B convertible preferred stock into common stock
and the payment of accumulated dividends on our preferred stock upon
consummation of this offering. The lender has conditionally consented to and
waived the negative covenants for these transactions subject to the completion
of this offering.
Working capital at March 31, 1999 amounted to $5.3 million compared to $5.1
million at December 31, 1998 and $3.0 million at December 31, 1997. Cash and
cash equivalents amounted to $2.7 million at March 31, 1999 compared to $3.2
million at December 31, 1998, and $1.5 million at December 31, 1997. The
increases in working capital at December 31, 1998 and March 31, 1999 of $2.1
million and $221,000, respectively, were primarily due to the $2.9 million and
$710,000 of cash provided by operating activities during 1998 and the three
months ended March 31, 1999, respectively.
Our primary short-term capital requirements are for increasing the level of
automation of our production lines and increased research and development
activity. The aggregate maturities on our term loan are expected to be $224,000
in 1999 and $245,000 in 2000. We currently plan to spend approximately $1.0
million annually over the next several years for the expansion and development
of our manufacturing capabilities. We also expect our research and development
expenses to increase significantly over the next several years as we expand our
product development activity. Our future liquidity and capital funding
requirements will depend on numerous factors. We believe that the net proceeds
of this offering, together with existing cash and cash generated from
operations, will be sufficient to satisfy our capital requirements for at least
the next twelve months. To the extent our capital requirements are materially
different from those planned, we may seek to raise additional funds through the
27
<PAGE> 30
issuance of equity or debt securities. It is possible that additional funds may
not be available on acceptable terms, or at all. See "Risk Factors -- We May
Need to Raise Additional Capital, Which May Not Be Available on Acceptable
Terms, or at All."
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss to future earnings, to fair values or to
future cash flows that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, exchange rates, commodity prices, equity prices and
other market changes.
We do not engage in trading activities, do not have significant foreign
currency transactions, do not utilize derivative financial instruments and, as
of the date of this prospectus, do not have any outstanding floating rate
indebtedness. As a result, our exposure to market risk is primarily related to
our investment in Molecular Innovations, an unrelated company.
At March 31, 1999, our investment in Molecular Innovations included a
$125,000 investment in the preferred stock of Molecular Innovations and a
$300,000 convertible term note that bears interest at 9% and matures in July
2000. There is no public market for the securities of Molecular Innovations. If
the value of these investments was to become impaired, we would record a loss
equal to the decline in value of these investments.
In addition, we have bank debt consisting of a fixed rate term note and a
variable rate revolving line of credit. At March 31, 1999, we had approximately
$1.8 million outstanding under the term loan and no balance outstanding under
the line of credit. As a consequence, unless we borrow under this line of
credit, a change in interest rates would not have a material effect on our
operating results.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, as well as other control
devices, use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process data related to the year 2000. We are continuing to
assess the impact of the year 2000 issue. While our products do not include any
software or embedded computer circuitry that could be impacted by these issues,
we have identified two key areas of our business that may be affected by the
year 2000 issue:
Internal Infrastructure. We rely on our systems and applications in
operating and monitoring all major aspects of our business, including our
financial reporting, information and manufacturing systems. The year 2000 issue
could impact all of the systems and computer applications used in all aspects of
our business, including our general and subsidiary ledgers, networking and
telecommunication systems, production, planning and scheduling, manufacturing
equipment and customer service. While we believe our internal systems are year
2000 compliant, we will not know the full extent of the impact of those issues
until the turn of the century. Any disruption in our internal infrastructure
could cause shipment errors, make it more difficult to obtain certain raw
materials or to forecast adequately, cause business interruptions, harm our
customer relationships, and in general, adversely affect our business. In 1997,
we developed a three-phase program for year 2000
28
<PAGE> 31
internal infrastructure systems compliance. Phase I identified those systems
with which we have exposure to the year 2000 issue. Phase II involved the
development and implementation of action plans to be year 2000 compliant. Phase
III, which is expected to be completed by mid-1999, involves the final testing
of each major area of exposure to ensure compliance.
In accordance with Phase I of this program, we have conducted an internal
review of all of our systems and have contacted all software suppliers to
determine our major areas of exposure to the year 2000 issue. In our financial
reporting, information and manufacturing systems area, a number of applications
have been identified as being year 2000 compliant due to their recent
implementation. We believe that our financial reporting, information and
manufacturing systems are year 2000 compliant.
Third Party Relationships. We also rely, directly and indirectly, on the
external systems of our customers, suppliers, creditors and financial
organizations, both domestic and international, for the accurate exchange of
data. Even if the year 2000 issue does not affect our internal infrastructure,
we could be affected through disruptions in the operations of the enterprises
with which we interact. Despite our efforts to address the impact of the year
2000 issue on our own internal systems, the impact of the year 2000 issue on
other enterprises could adversely affect our business.
We are currently in the process of contacting most of the entities with
which we have a material third party relationship. To date, those who have
responded, including Roche, have represented to us that they either are or
intend to be year 2000 compliant by the year 2000. We have not yet determined
what costs may be incurred in connection with our third party relationships, but
such costs could be substantial.
To date, we believe our expenses to address the year 2000 issue have
totaled less than $100,000. We believe there will be no additional material
expenditures necessary to replace our core financial, reporting and
manufacturing systems. We currently have no contingency plans to address any
unforeseen year 2000 problems. We believe our most reasonably likely worse case
scenario for our internal infrastructure would be that our business would be
disrupted, and all of our accounting, customer service, manufacturing,
purchasing and production planning processes would have to revert back to the
prior manual systems to record transactions, which could cause significant
delays. Our most reasonably likely worse case scenario for our third party
relationships with our suppliers and vendors would be that our vendors will not
be able to supply our raw materials, which would prohibit us from shipping
products and recognizing revenue, or our customers will not be able to pay the
amounts due us in a timely manner. Our business could be adversely affected by
disruptions in our operations if either our internal infrastructure or that of
our key suppliers and customers is not year 2000 compliant. Any such disruption
could cause shipment errors, harm our customer relationships and cause serious
business interruptions and production delays. We could also be affected by
general widespread problems or economic crisis resulting from noncompliant year
2000 systems.
29
<PAGE> 32
BUSINESS
GENERAL
ANSYS develops, manufactures and markets drug testing products for both
on-site and laboratory settings, as well as specialty laboratory and research
products. Our on-site drug testing products are self-contained, easy to use,
disposable tests which detect the presence of drugs of abuse and alcohol, and
provide highly accurate results in less than five minutes. These products are
used in a variety of applications, including pre-employment screening, random
employee testing, government mandated testing and parole and probation
monitoring, as well as in other applications that require rapid, accurate
results. Our laboratory-based drug testing product line, sold under the name
TOXI-LAB, can accurately detect more than 500 drugs and drug byproducts in
urine, blood, tissue and other specimens. TOXI-LAB is primarily used by hospital
and forensic laboratories.
ANSYS also develops, manufactures and markets specialty laboratory and
research products. Our SPEC products are used for a variety of analytical
applications, including drugs of abuse confirmation testing, therapeutic drug
monitoring and sample preparation in drug discovery and drug metabolism studies.
Our nucleic acid separation and detection products are used by clinical and
environmental testing laboratories, pharmaceutical and biotechnology companies
and DNA testing and research organizations.
STRATEGY
We seek to strengthen our competitive position in the drug testing and
specialty laboratory and research markets by pursuing the following strategies:
EMPLOY MARKET DRIVEN PRODUCT DEVELOPMENT. Our product development strategy
is to adapt and enhance our diagnostic testing technologies, our engineering,
production and chemistry capabilities and our product formats in response to
customer demands. To accomplish this, we monitor existing markets, maintain a
continuing dialogue with our current customers through workshops and technical
consultation hotlines, and assist our customers in identifying new needs as they
develop.
FOCUS ON STRATEGIC RELATIONSHIPS. We seek to enhance our present
relationships with companies such as Roche and Molecular Innovations, as well as
to develop new strategic relationships. We have collaborated with Roche for more
than six years, and continue to work with Roche both contractually and
informally in developing new products, such as TesTcup ER, for the drug testing
markets. In addition, we have formed a strategic relationship with Molecular
Innovations to develop rapid nucleic acid separation and detection products. We
believe we are in a position to attract and develop additional strategic
relationships because of our innovative design and development expertise and
efficient manufacturing capability. We intend to target licensing and
distribution partners whose strong sales and marketing capabilities will enable
them to promote and sell our products more effectively.
ACCELERATE DEVELOPMENT OF NEW DRUG TESTING PRODUCTS. We emphasize
innovation in the design and development of products that address the needs of
our target markets. We intend to accelerate new drug testing product development
by hiring additional scientific and technical personnel, investing additional
resources in research and development, and pursuing joint research and
development arrangements with companies that offer complementary resources.
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<PAGE> 33
INCREASE EMPHASIS ON SPECIALTY LABORATORY AND RESEARCH PRODUCTS. We intend
to focus a significant portion of our product development effort on expanding
our specialty laboratory and research product line. We believe a substantial
market exists for these products in a variety of diagnostic applications. We
plan to develop additional nucleic acid purification and separation products, as
well as complete kits for performing the laboratory work required to isolate and
purify nucleic acids. We also plan to expand our sample preparation product line
to accommodate a wider variety of automated sample processing equipment.
ACHIEVE MANUFACTURING EFFICIENCIES THROUGH AUTOMATION. We are currently
incorporating sophisticated automation equipment into our manufacturing facility
in order to automate certain portions of our production processes. We are
continually evaluating our manufacturing processes to identify additional
automation opportunities. By installing custom-designed, state of the art
manufacturing systems, we believe we can further enhance productivity and
improve cost-efficiency while maintaining our high level of product quality.
PURSUE STRATEGIC ACQUISITIONS. We intend to examine opportunities to
acquire, license or enter into supply arrangements to obtain innovative
diagnostic testing technologies, product formats and products that complement
our existing operations and address the needs of our target customer base. We
regularly identify and review strategic acquisition opportunities through our
industry contacts and recognized position in the industry, as well as through
dialogue with our strategic partners.
THE DRUG TESTING MARKET
According to an independent research company, the market for drugs of abuse
testing products in the United States was approximately $628 million in 1996,
and will increase to approximately $900 million by 2002. Drug testing has
historically consisted primarily of urine-based screening performed in reference
laboratories. Specimens are collected and sent to these laboratories, where
skilled technicians process the specimens and document test procedures and
results. Laboratory testing is typically carried out on sophisticated analyzers,
which use automated liquid handling mechanisms for the addition of chemical
solutions and rely on absorption or fluorescence of light, or other detection
methods to determine the presence and amount of substances in the specimen.
Laboratory instruments are generally capable of detecting multiple
substances from a large number of specimens, and provide accurate and highly
sensitive test results. Laboratory testing, however, has several limitations.
Laboratory instruments are generally large, complex and costly. They require
high specimen throughput to justify the required investment in equipment,
training and staffing, as well as the costs required to operate and support
these instruments. Generally, the turnaround time for test results in reference
laboratories is measured in hours and days. In addition, laboratory testing in
which a large number of samples must be handled creates special challenges in
meeting chain of custody requirements. Chain of custody refers to the
documentation of the transportation and handling of the specimen from the time
of collection until the specimen is analyzed in a laboratory and ultimately
discarded. Chain of custody requirements are primarily designed to ensure that a
specimen is correctly associated with a given individual and has not been
adulterated. All specimens must be accompanied by chain of custody forms and be
in specially sealed, tamper-evident containers.
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The limitations of laboratory testing, combined with technological advances
permitting accurate testing outside the laboratory, have resulted in a
continuing shift to simple, rapid, self-contained, disposable diagnostic tests
that can be performed in a variety of on-site settings. On-site tests have been
developed in a number of formats, including lateral flow and flow-through
membrane devices, dipsticks and test tubes. These tests are intended to generate
accurate results that provide either a yes/no answer or a quantitative result,
primarily through a color change. When an on-site drug test indicates the
presence of a drug, the samples are routinely subjected to confirmation testing,
typically performed in an off-site laboratory. We believe that the on-site
segment of the drug testing market has experienced substantially higher growth
in recent years than the traditional laboratory-based market segment. While we
believe that laboratory testing will continue to play an important role in drug
testing, particularly confirmation testing, we also believe that on-site testing
will be increasingly used in the following applications:
WORKPLACE DRUG TESTING. Drugs of abuse testing in the workplace includes
pre-employment screening, random employee testing and government mandated
testing. According to the United States Substance Abuse Mental Health Services
Administration, over 13 million people in the United States in 1996 were illicit
drug users. The U.S. Department of Labor estimates that over 70% of illegal drug
users are employed. In addition, the Society for Human Resources Management
estimates that approximately 95% of Fortune 500 companies conduct pre-employment
drug screening. Corporations are using drug screening in the workplace with the
intention of reducing workers' compensation claims, absenteeism, employee
turnover, accidents, health care costs and generally creating a safer workplace.
Drugs of abuse testing in the workplace has experienced significant growth in
recent years due to various factors, including: (1) government regulations which
mandate testing in certain job categories; (2) the Federal Drug-Free Workplace
Act of 1988; (3) court decisions recognizing a private sector employer's right
to test both employees and job applicants; (4) efforts by insurance carriers to
reduce accident liability and control health care costs; and (5) corporate
requirements that vendors and contractors certify that their workplaces are drug
free.
Historically, workplace drug testing has been performed primarily in
reference laboratories or hospital-based laboratories. Recently, however, an
increasing portion of workplace drug testing has been performed using tests that
can be easily administered on-site. The SmithKline Beecham Drug Testing Index
indicated that only 5% of the nearly five million workplace drug tests performed
in 1997 by SmithKline's clinical laboratories were positive for illegal
substances. On-site drug tests are particularly valuable in settings like this
because they enable employers to permit the large number of employees whose test
results are negative to enter or return to the workforce without undue delay.
GOVERNMENT MANDATED DRUG TESTING. Several government agencies screen their
workers for drugs of abuse, while others mandate drug testing of certain persons
subject to monitoring. For example, the United States Department of
Transportation has established mandatory guidelines for random drug testing of
workers involved in the transportation industry, including airline pilots, truck
drivers and rail employees. The Department of Transportation's regulations
currently require 50% of its regulated workers, or approximately four million
persons, to be randomly tested for drugs each year. State parole and probation
agencies test subjects for suspected drug and alcohol abuse if there is
behavioral evidence of abuse. According to the U.S. Department of Justice,
approximately 3.8 million people are on parole or probation in the United
States, and one-third of them are subject to mandatory drug testing.
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Other government agencies have implemented extensive pre-employment drug
screening programs. For example, the United States Postal Service has
implemented a pilot drug screening program using TesTcup that will require
approximately 250,000 on-site drug tests. The United States military also
routinely performs drug screens on all recruits, as well as random tests and
testing for cause.
HOSPITAL/EMERGENCY ROOM DRUG TESTING. Drug abuse plays a role in many
emergency room visits, either as a primary cause such as an overdose, or as a
contributing factor such as in an accident. When an emergency room physician
receives a patient with symptoms that may or may not be drug related, that
physician must quickly determine the presence of drugs in order to prescribe the
correct treatment. Currently, most emergency room drugs of abuse testing
procedures are performed away from the patient at the hospital laboratory, a
process which can take several hours to produce a result. Tests have also been
developed for on-site use in the emergency room, but most of these tests require
multiple steps, are time-sensitive and are cumbersome to use. We believe that a
diagnostic test that could be easily performed by nontechnical personnel in
order to rapidly diagnose drugs of abuse in the emergency room would be of
substantial benefit in determining the appropriate course of treatment.
THERAPEUTIC DRUG MONITORING. We believe that a significant opportunity
exists for rapid, easy to use on-site diagnostic products in therapeutic drug
monitoring, an area also traditionally addressed by laboratory testing products.
Many therapeutic drugs require complicated dosing regimens in order for the drug
to be effective. The failure of patients to take their medications as prescribed
could lead physicians to improperly prescribe treatment in an effort to achieve
the desired effect. As a result, physicians may desire to periodically monitor
their patients to validate compliance with prescribed treatment. Currently, most
physicians monitor therapeutic drugs by sending a urine or blood sample to a
central laboratory for analysis. This process can be time consuming and can add
significant cost to the overall treatment. Thus, physicians may be unable to
employ monitoring as frequently as they might desire. The ability to rapidly
monitor the presence of therapeutic drugs or their byproducts while the patient
is in the physician's office would provide the physician with real-time
information that could improve patient treatment.
OTHER DRUG TESTING APPLICATIONS. We believe there is a growing demand for
rapid, accurate, easy to use drug testing products in drug treatment centers. We
also believe there is a substantial over-the-counter market for rapid drug
screening devices that will be used by small employers, academic institutions,
private counselors, physicians and concerned parents.
THE SPECIALTY LABORATORY AND RESEARCH PRODUCTS MARKET
Clinical and environmental testing laboratories, pharmaceutical and
biotechnology companies and DNA testing and research organizations frequently
conduct research on samples that must be isolated and purified prior to
analysis. This isolation and purification process is known as sample
preparation. Sample preparation is important in these specialty laboratory and
research settings because impurities in a sample can cause test results that are
inaccurate, unreliable or cannot be reproduced. Historically, sample preparation
has been a labor and time-intensive process. In recent years, however,
traditional sample preparation methods have begun to be replaced with reliable,
fast and high quality technologies and products. Two important segments of the
specialty laboratory and research products market are solid phase extraction and
nucleic acid separation.
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SOLID PHASE EXTRACTION. Sample preparation products are used to separate
both solid and liquid components using various techniques including filtration,
chromatography (chemical separation), centrifugation (physical separation by
rotational force), solid phase extraction and liquid extraction techniques.
Solid phase extraction is a technique for removal of a target substance from a
liquid onto a solid surface and the subsequent release of the substance for
analysis. Solid phase extraction techniques are employed for sample preparation
in drug discovery and drug metabolism studies in the pharmaceutical and clinical
laboratory industries. Biomedical laboratories use solid phase extraction to
prepare samples for drugs of abuse confirmation, therapeutic drug monitoring and
other applications. Environmental testing laboratories also use solid phase
extraction for sample preparation of drinking water and waste water analysis
under the guidelines of the EPA. Biotechnology laboratories also use solid phase
extraction for isolating DNA from biological matrices.
NUCLEIC ACID SEPARATION. Nucleic acid separation involves isolating nucleic
acids from other soluble contaminants. Nucleic acids, including DNA and RNA, are
the fundamental regulatory molecules of life. Over the past 20 years, an
increased understanding of nucleic acid structure and function has led to the
use of nucleic acids in a broad array of therapeutic and diagnostic
applications. All of these applications require highly purified nucleic acids.
Pure nucleic acids are essential for reliability and reproducibility of
molecular biology experiments in both academic and industrial research
laboratories, as well as for the accuracy of results in nucleic acid-based
clinical diagnostics. Most nucleic acid separation and purification occurs in
laboratories using specialized equipment. In addition, because the results of
nucleic acid testing can be compromised due to contamination of the testing
environment, and because handling requirements must be strictly followed,
individuals specially trained in molecular biology typically conduct these
procedures. In addition to a need for improved nucleic acid separation products
in the laboratory, we believe there are a number of potential applications for
on-site nucleic acid testing. For example, on-site nucleic acid tests could be
used to detect microorganisms in drinking water and other liquids, or viral or
bacterial contamination in environmental samples.
ANSYS PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
DRUG TESTING PRODUCTS
We develop products that we believe address many of the limitations of
traditional laboratory and on-site testing products. We have applied our core
competencies in product design, engineering and manufacturing to bring to market
products for drugs of abuse and alcohol testing and are developing new products
for these applications as well as for new applications such as therapeutic drug
monitoring. We intend to continue to develop, manufacture and sell products
which are designed to meet the changing needs of the diagnostic testing markets
and offer some or all of the following attributes:
- EASE OF USE. TesTcup, TesTstik, ON-SITE Alcohol and the on-site products
under development are designed to be easy to use, read and interpret.
These tests are portable, self-contained and disposable, and eliminate
the need to handle the specimen and/or mix and dispense chemical
solutions. Test results from these products are provided in a
"positive/negative" color change format that is designed to be clear and
easy to read and interpret. In addition, TesTcup features specimen
collection and testing in a single, integrated device, which effectively
addresses strict chain of custody requirements.
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- IMMEDIATE RESULTS. TesTcup, TesTstik, ON-SITE Alcohol and the on-site
products under development are designed to offer complete test results in
less than five minutes, allowing employers, government testing
administrators, health care professionals and other customers to take
appropriate action immediately. By contrast, processing of tests in
reference or hospital laboratories can require hours or days to obtain
results. In addition, our products do not require refrigeration and
remain stable at room temperature, making them immediately available for
use. TesTcup ER, a version of TesTcup designed specifically for the
hospital emergency room, is intended to be a cost-effective means to
shorten time to medical intervention and to minimize the need for
additional patient follow-up.
- ANALYTICAL ACCURACY. The on-site products developed by ANSYS are
designed to provide accurate and reproducible results, comparable to
results obtained in a reference or hospital laboratory using complex
laboratory analyzers. In addition, our TOXI-LAB system is designed to
provide high analytical accuracy and identifying power similar to
instrument based methods.
- MULTI-SUBSTANCE TESTING CAPABILITY. TesTcup and TOXI-LAB, as well as
certain other products under development, are designed to measure
multiple target substances simultaneously without sacrificing the quality
of the individual analysis. Our products that test for multiple
substances can identify the presence of one or more substances while
simultaneously indicating the absence of other substances. We believe
that when multiple substance screening is required, simultaneous
detection capability provides significant time and cost savings. TesTcup
offers simultaneous testing for amphetamines, cocaine, morphine, THC and
PCP. TesTcup ER is designed to simultaneously detect the presence or
absence of amphetamines, cocaine, morphine, barbiturates and
benzodiazepines. The TOXI-LAB system has the ability to detect over 500
drugs and drug byproducts.
- QUALITY. We endeavor to maintain high standards of quality in all aspects
of our operations. All of the products developed by ANSYS incorporate
high quality biological and chemical solutions. Our manufacturing
facility is designed to comply with Quality System Regulations and other
government guidelines. In addition, we employ extensive quality control
procedures at all stages of the manufacturing process, from receipt of
raw materials to shipping of finished products. We continuously monitor
compliance with our quality standards in order to ensure product
reliability.
- COST-EFFECTIVENESS. TesTcup, TesTstik, ON-SITE Alcohol and the on-site
products under development are designed to eliminate the need for highly
trained technicians and significant outlays for laboratory equipment,
making them cost-effective alternatives to laboratory analyzers in many
applications. Unlike automated sample processing instruments, TOXI-LAB
does not require significant capital expenditures.
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Our drug testing products and products under development include the
following:
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
OUR DRUG TESTING PRODUCTS
- --------------------------------------------------------------------------------
<CAPTION>
PRODUCT
OWNERSHIP
PRODUCT DESCRIPTION/USE STATUS RIGHTS
- ---------------- ----------------------------------- ------------ -----------
<S> <C> <C> <C>
TesTcup 4/5 Collection and testing device for Commercial Roche
simultaneous screening of multiple
drugs of abuse: amphetamines,
cocaine, morphine, THC (marijuana
metabolite) and PCP (TesTcup 5
version only)
TesTcup ER Hospital emergency room version of Commercial Roche
TesTcup configured to
simultaneously screen for
amphetamines, cocaine, morphine,
barbiturates and benzodiazepines
TesTcup 5 M2K Version of TesTcup 5 which has a Launch Roche
higher detection level for morphine
TesTstik Family of products in a dipstick
format that each test for a single
abused drug:
- Amphetamines, cocaine, morphine, Commercial Roche
THC, PCP, barbiturates,
benzodiazepines
TesTstik 2 Version of TesTstik configured to Prototype Roche
test for two substances (cocaine Stage
and THC) simultaneously
TesTstik 3 Version of TesTstik configured to Prototype Roche
test for three substances (cocaine, Stage
THC and either amphetamines or
morphine) simultaneously
ON-SITE Alcohol Pocket-sized device designed to Commercial ANSYS
detect the presence of alcohol
(ethanol) in saliva or urine
TOXI-LAB Drug Bench-top system designed to detect Commercial ANSYS
Screening over 500 drugs and drug byproducts,
System with built-in quality control
TOXI-LAB THC II Extension of the TOXI-LAB system Commercial ANSYS
System used to test for evidence of
marijuana usage
TOXI-LAB LTD- Extension of the TOXI-LAB system Commercial ANSYS
Opiate System used to test for evidence of opiate
usage
DRUGSTAT RA Lateral flow device designed to Early ANSYS
monitor the ritalinic acid Development
metabolite of Ritalin, a
therapeutic drug used to treat
attention deficit disorder
- --------------------------------------------------------------------------------
</TABLE>
Roche has the exclusive right to market and distribute TesTcup 4/5, TesTcup
ER, TesTcup 5 M2K, TesTstik, TesTstik 2 and TesTstik 3. For a description of our
manufacturing and development agreements with Roche, see "Business -- Agreements
with Roche."
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TESTCUP 4/5. TesTcup is a self-contained, disposable urine collection and
testing device designed to detect the presence of up to five drugs of abuse
simultaneously. TesTcup provides easily interpreted results in approximately
five minutes and is designed to be simple to use. Once the urine specimen is
collected in the TesTcup, the lid is secured to the cup and the cup is tilted
forward for ten seconds, allowing urine to flow through a valve into a sample
reservoir in the cup. The cup is righted and left undisturbed for approximately
three minutes, until distinct blue lines appear on the side of the cup in the
"TEST VALID" windows indicating that results are ready. At that point, a cover
label is peeled off to reveal the test results. A white plus (+) sign indicates
the presence of a drug and a blue minus (-) sign indicates the absence of a
drug.
By integrating sample collection, detection and storage features into one
device, TesTcup eliminates the need to handle samples, mix chemical solutions,
calibrate and maintain instruments, and other aspects of most drug testing
methods. We believe that TesTcup provides enhanced convenience and exceptional
testing flexibility and reliability. When test results are negative, immediate
action can be taken without the need to wait for laboratory results. In the
workplace setting, these immediate results enable employees to return to or
enter the workforce without delay. When test results are positive, the TesTcup
device acts as a shipping container to transport the specimen to the laboratory
for confirmation testing. TesTcup's innovative sealing mechanism and labeling
system ensure that all chain of custody requirements are met in the event any
disputes arise regarding the integrity of the test.
TesTcup is used primarily in pre-employment screening, random employee
testing, criminal justice testing and clinical applications. For example, we
have been advised by Roche that the United States Postal Service is currently
using TesTcup for its recently implemented pilot drug screening program.
TESTCUP ER. ANSYS and Roche co-developed TesTcup ER, a new version of the
TesTcup product specifically designed to meet the requirements of hospital
emergency rooms. TesTcup ER tests for five substances simultaneously, including
barbiturates and benzodiazepines, substances which are often encountered in drug
related emergency room visits. We believe that TesTcup ER will offer a number of
advantages in the emergency room setting, including ease of use, rapid, accurate
results and cost-effectiveness. Roche has begun advertising and is currently
taking orders for TesTcup ER. We commenced shipments of TesTcup ER to Roche in
the first quarter of 1999.
TESTCUP 5 M2K. ANSYS and Roche co-developed TesTcup 5 M2K, a new version
of the TesTcup product specifically designed to meet the new guidelines of the
Substance Abuse and Mental Health Services Administration, which call for a
higher detection level for morphine. TesTCup 5 M2K tests for five substances
simultaneously and is equivalent to the TesTcup 5 product, except for the higher
detection level for morphine. We anticipate that TesTcup 5 M2K will be offered
through Roche to customers who request a higher morphine detection level.
TESTSTIK. TesTstik is a self-contained, easy to use, disposable dipstick
designed to detect the presence of a single drug of abuse in approximately three
minutes. We currently manufacture separate versions of TesTstik for five common
drugs of abuse, and we began shipping to Roche new versions for detection of
barbiturates and benzodiazepines in the first quarter of 1999. The test is
conducted by submersing the sample pad in the urine specimen for five to seven
seconds, after which the slide cover is closed. Once the distinct
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blue line appears indicating "TEST VALID," a plastic tab is broken off and
results can be read. A white plus (+) sign indicates the presence of a drug and
a blue minus (-) sign indicates the absence of a drug. TesTstik requires no
mixing or dispensing of chemical solutions, no pipetting of urine and no
refrigeration. TesTstik is used primarily for parole and probation testing,
workplace testing and drug treatment programs.
TESTSTIK 2 AND TESTSTIK 3. ANSYS and Roche are currently developing
TesTstik 2 and TesTstik 3, new versions of the TesTstik product designed
primarily to meet the requirements of parole and probation agencies and drug
treatment programs. TesTstik 2 is designed to test for two substances
simultaneously and TesTstik 3 is designed to test for three substances
simultaneously. We believe that these products, if successfully developed, could
offer a number of advantages in parole and probation settings, including ease of
use, rapid, accurate results and cost-effectiveness. We have produced prototypes
of these products for Roche and Roche is currently conducting marketing
evaluations of the products.
ON-SITE ALCOHOL. ON-SITE Alcohol is a self-contained, easy to use,
disposable, pocket-sized device designed to detect the presence of ethanol in
urine or saliva. Using a small pipette included in the test kit, a drop of
reagent is transferred from the built-in reagent well to the detection pad. A
drop of the specimen is transferred to the sample well using either the kit's
pipette or its saliva swab, and the result appears in approximately two minutes.
A purple plus (+) sign indicates the presence of ethanol while no color change
indicates the absence of ethanol. ON-SITE Alcohol is primarily used for parole
and probation testing, workplace testing and drug treatment programs. ON-SITE
Alcohol qualifies under the Department of Transportation's regulations for
mandatory random testing of transportation industry workers, including airline
pilots, truck drivers and rail employees.
TOXI-LAB DRUG SCREENING SYSTEM. The TOXI-LAB drug screening system is a
unique, bench-top, thin layer chromatography system that is designed to detect
over 500 drugs and drug byproducts. TOXI-LAB uses a comprehensive, standardized
set of reference materials and offers built-in quality control, and consistent
and reproducible procedures. TOXI-LAB incorporates disposable extraction and
evaporation components which prevent cross-contamination and eliminates the
spraying of hazardous chemical solutions, thus creating a safer working
environment for the technician. TOXI-LAB is primarily used by small or mid-sized
hospitals and forensic laboratories. In emergency room applications, TOXI-LAB is
used to detect or rule out many drugs quickly in suspected poisoning cases, and
to substantiate drug overdoses or drug interactions. TOXI-LAB is used prior to
hospital admission or surgery to guard against harmful drug interactions.
TOXI-LAB is also used to monitor patient and employee compliance in substance
abuse programs, psychiatric centers, employee assistance programs and in
geriatric medicine. Law enforcement agencies, forensic laboratories and prisons
use TOXI-LAB to monitor compliance with probation and parole requirements, as
well as to analyze certain types of contraband.
TOXI-LAB THC II SYSTEM. The TOXI-LAB THC II System is an extension of the
TOXI-LAB drug screening system, and is designed to be a rapid, easy to use urine
test to detect for evidence of marijuana usage. THC II is primarily used in
reference laboratories. THC II allows the laboratory to process multiple samples
simultaneously and incorporates our SPEC solid phase extraction columns, which
provide rapid and selective substance extraction and a reduction in sample
preparation time. The level of sensitivity achieved with THC II satisfies the
most stringent drug screening and confirmation requirements.
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TOXI-LAB LTD-OPIATE SYSTEM. The TOXI-LAB LTD-Opiate System is an extension
of the TOXI-LAB drug screening system designed to be a rapid, easy to use test
for screening or confirmation of opiates in urine. LTD-Opiate is primarily used
in reference laboratories to detect low levels of opiate alkaloids and their
byproducts. This system differentiates each of the opiates, providing a specific
analytical result without the need for sophisticated instrumentation. LTD-Opiate
also includes our SPEC solid phase extraction columns, which provide rapid and
selective substance extraction and a reduction in sample preparation time.
DRUGSTAT RA. We are in the early stage of development of a lateral flow
immunoassay device for the detection of ritalinic acid in urine. Ritalinic acid
is a metabolite of Ritalin, which is a prescription drug used to treat attention
deficit disorder. Currently, dosage compliance by the patient is not frequently
monitored. DRUGSTAT RA would be used outside a laboratory setting to detect the
presence of ritalinic acid and would provide a noninvasive alternative to a
blood test so that patient compliance could be monitored quickly and appropriate
treatments could be prescribed immediately.
SPECIALTY LABORATORY AND RESEARCH PRODUCTS
Our specialty laboratory and research products include products for solid
phase extraction and for nucleic acid separation and detection. The specialty
laboratory and research products and products under development by ANSYS include
the following:
<TABLE>
- ----------------------------------------------------------------------------
OUR SPECIALTY LABORATORY AND RESEARCH PRODUCTS
- ----------------------------------------------------------------------------
PRODUCT
OWNERSHIP
PRODUCT DESCRIPTION/USE STATUS RIGHTS
- ----------------- ------------------------------ ------------ -----------
<S> <C> <C> <C>
SPEC Solid Phase Family of sample preparation Commercial ANSYS
Extraction products marketed in four
Products primary formats: SPEC Columns,
SPEC 96-Well Plates, SPEC
Pipette Tips and SPEC
Extraction Discs
Nucleic Acid Sample preparation products Commercial Promega
Isolation that isolate nucleic acids
Products
XtraAMP Sample preparation tubes Beta Testing Molecular
incorporating DNA binding Innovations
material for rapid isolation
of nucleic acids
SCIP DNA testing cartridge that Research Molecular
integrates isolation, Innovations
amplification and detection to
screen for environmental
toxins and microorganisms
- ----------------------------------------------------------------------------
</TABLE>
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SPEC SOLID PHASE EXTRACTION PRODUCTS. Our SPEC solid phase extraction
products use proprietary membrane technology for preparing samples for trace
analysis. The SPEC products isolate substances of interest from urine, blood,
plasma or any other liquid sample. Unlike conventional solid phase extraction
products, our SPEC products use a proprietary small extraction disc, thereby
reducing solvent usage and hazardous waste generation, and reducing sample size
requirements for more efficient laboratory sample preparation. We currently
market the SPEC products in four primary formats: SPEC Columns, SPEC 96-Well
Plates, SPEC Pipette Tips and SPEC Extraction Discs. We believe that these four
formats satisfy the needs of various types of laboratories with respect to
sample size, number of samples processed and compatibility with existing
laboratory instrumentation. The primary markets for our SPEC products are
pharmaceutical companies and clinical testing laboratories performing drug
discovery and drug metabolism studies and confirmations, as well as
biotechnology companies engaged in DNA testing.
NUCLEIC ACID ISOLATION PRODUCTS. We exclusively manufacture two custom
nucleic acid isolation products for Promega using our proprietary membrane
technology. These products are packaged into kits by Promega and sold through
their biological research catalog.
XTRAAMP. In collaboration with Molecular Innovations, we have commenced
beta testing of our new XtraAMP product, which incorporates DNA binding material
into sample preparation tubes. The resulting XtraAMP tube is intended to be used
for the rapid extraction of DNA prior to amplification and detection. We have
the exclusive worldwide right to manufacture XtraAMP. We also have the exclusive
worldwide right to market and distribute XtraAMP to the bloodbanking market, and
the non-exclusive right to market and distribute XtraAMP in other markets.
SCIP. ANSYS, in conjunction with Molecular Innovations, is conducting late
stage research of an on-site DNA testing device known as the SCIP
(Self-Contained Isothermal Particle) cartridge. This device integrates sample
preparation, DNA amplification and lateral flow detection into a single
cartridge. Incorporation of the multiple steps into an individual cartridge
simplifies the process and reduces the potential for contamination. We believe
potential applications for SCIP include testing environmental samples for viral
contamination or the presence of other microorganisms.
TECHNOLOGY
Our technology integrates creative scientific concepts with innovative
product designs. Our research and development program applies our core
technology expertise to research projects and is currently performed in
accordance with the Quality System Regulations. We have expertise in several
core scientific disciplines, including membrane technologies, surface
chemistries and molecular interactions, all of which have enabled us to develop
innovative devices for both on-site and laboratory testing applications.
MEMBRANE TECHNOLOGIES. All of our products rely upon specialized membranes.
We have significant expertise in the manufacturing and processing of both
inorganic and organic membranes. Our inorganic membranes are used as the
separation media in our TOXI-LAB system, and the SPEC solid phase extraction
membranes are an extension of the TOXI-LAB membrane technology. We also have
expertise in processing organic membranes, such as the nitrocellulose-based
membranes used in the TesTcup and TesTstik product lines.
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SURFACE CHEMISTRIES AND MOLECULAR INTERACTIONS. Our technical expertise
includes the chemical modification of surfaces. By changing the surface
characteristics of the membrane through chemical modifications and other
techniques, we can control interactions between the membrane and the substance
of interest. We have developed 15 surface chemistries targeted at specific
product separations. We apply our understanding of surface chemistries and
molecular interactions between the substance and the surface of the membrane to
customize membranes for specific applications.
RESEARCH AND DEVELOPMENT
We principally focus our research and development efforts on responding to
market demands through the integration of creative scientific concepts with
innovative product designs. As of March 31, 1999, we had 12 employees in
research and development, all of whom are dedicated to the development of new
drug testing products and specialty laboratory and research testing products, as
well as new applications for our current products. Our scientific personnel
utilize expertise in several core scientific disciplines, including membrane
technologies, surface chemistries and molecular interactions. We also have a
core competency in design engineering. The engineering staff uses computer aided
design and rapid prototype techniques for the design and development of new
diagnostic devices and manufacturing processes which incorporate biological and
chemical solutions into our products. Our engineering abilities enable us to
design products rapidly. For example, we provided Roche with working prototypes
of TesTstik 2 and TesTstik 3, each in approximately two weeks. While we
currently fund substantially all of our own research and development, we
received development fees from Roche in the amount of $60,000 in the fourth
quarter of 1996 and in the amount of $20,000 in the first quarter of 1997 to
co-develop the initial TesTstik product. We have also engaged third parties from
time to time to conduct discrete research and development projects.
SALES AND MARKETING
As of March 31, 1999, we employed 11 persons in various sales and marketing
functions, including technical support. We sell our on-site drug testing
products primarily to Roche. Roche has the exclusive right to market and
distribute the TesTcup and TesTstik product lines as well as any modifications
and improvements to these products. Roche also markets and distributes ON-SITE
Alcohol in the United States and Canada. In addition, Roche has the right of
first refusal to exclusively market any and all new antibody based drugs of
abuse products that we developed. Sales to Roche represented 17% of our net
sales in 1996, 42% in 1997, 65% in 1998 and 69% for the three months ended March
31, 1999. Sales to Baxter Scientific Products represented 19% of our net sales
in 1996, and sales to Curtin Matheson Scientific represented 16% of our net
sales for the same period. No other customer or distributor accounted for more
than 10% of our net sales for the past three fiscal years or for the three
months ended March 31, 1999.
We sell our laboratory drug testing products direct in the United States to
hospitals, laboratories and universities, and through independent distributors
internationally. We sell our specialty laboratory and research products through
a combination of direct sales representatives and distributors.
Our Technical Support department operates a customer hotline 24 hours a
day, seven days a week in order to assist our customers in the use of our
products. Technical Support also publishes the SPEC-NEWS and TOXI-NEWS product
newsletters. These news-
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letters keep our customers informed of new developments in areas of interest
relevant to their industries. We also conduct numerous TOXI-LAB customer
training workshops throughout the year, and participate in annual product trade
shows and technical presentations.
MANUFACTURING
As of March 31, 1999, we had 235 employees involved in manufacturing,
assembly, process engineering, quality control and materials management. We
believe we comply with all aspects of the Quality System Regulations in the
production of our products and we maintain strict quality control regimens in
order to ensure high standards of quality.
Several of our manufacturing processes are automated. We are currently in
the process of automating additional manufacturing processes. We expect the
implementation of these manufacturing changes to allow for increased production
volumes while reducing per unit cost of goods sold. Our new automated equipment
is custom designed by manufacturers working closely with our engineering
department to ensure that our high quality standards are maintained. See "Risk
Factors -- Our Continuing Efforts to Increase Automation May Be Costly,
Time-Consuming and May Not Be Successful."
We obtain all raw materials for the manufacture of our products from
outside sources. The key raw materials used in our products include the
nitrocellulose membranes and liquid reagents used in our TesTcup and TesTstik
products, and the glass fiber membranes used in our TOXI-LAB and SPEC products.
All of these raw materials are currently only available from approved sole
source suppliers. We also use custom injection molded plastic parts which
comprise the packaging for our products. While the plastic pellets used in the
manufacture of these parts are readily available, Roche owns the custom molds
for TesTcup and TesTstik. We endeavor to keep a three-month supply of critical
raw materials and component parts on hand to avoid manufacturing interruptions.
See "Risk Factors -- The Failure of Sole Source Suppliers to Provide Key Raw
Materials Could Adversely Affect the Production of Our Products and Could Harm
Our Customer Relationships." Our quality control department inspects and tests
all raw materials, subassemblies and finished goods against established
acceptance standards.
COMPETITION
Our target markets are intensely competitive. We believe the principal
factors for competition include accuracy, reproducibility, ease of use,
distribution capabilities and price. Our competitors include diagnostic
companies that manufacture on-site and laboratory-based drug testing products,
as well as those that manufacture specialty laboratory and research products.
Some of our competitors have substantially greater financial, technical,
research and other resources and larger, more established sales, marketing,
distribution and service organizations than we have. Moreover, a number of these
competitors offer broader product lines, have greater name recognition than we
do and offer discounts as a competitive tactic. In addition, several smaller
companies are currently making or developing products that compete with or will
compete with our products.
We believe independent reference and hospital-based laboratories perform
the majority of diagnostic tests. We expect that these laboratories will compete
vigorously to maintain their position in our target markets. To achieve broad
market acceptance for our products, we, together with Roche, will be required to
demonstrate that our products are an
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attractive alternative to testing performed by reference and hospital-based
laboratories, which may require changes to their established means of testing.
Our products may not be able to compete with the testing services provided by
these laboratories.
Our competitors may develop or market technologies or products that are
more effective or commercially attractive than our current or future products or
that would render our technologies and products obsolete. These technologies may
limit or interfere with our ability to make, use or sell our products. In
addition, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. See "Risk Factors -- The Effects of Competition Could Adversely Affect
Our Business and Financial Condition."
AGREEMENTS WITH ROCHE
TesTcup Agreement. In April 1993, we entered into a commercial agreement
(the "TesTcup Agreement") with Roche. Pursuant to this agreement, Roche paid us
a $96,000 development fee to develop, in collaboration with Roche, a multiple
substance drugs of abuse testing device that ultimately became TesTcup. No
further development fees have been received or are due to us under this
agreement. Under the TesTcup agreement, we assigned to Roche in perpetuity all
of our ownership rights to TesTcup and to any modifications and improvements of
these products, such as TesTcup ER. In exchange for this assignment, we were
given the exclusive right to manufacture and supply TesTcup to Roche for the
term of the agreement. Roche also has the right of first refusal to exclusively
market any and all new antibody-based drugs of abuse products developed by us.
The initial TesTcup Agreement terminates on December 31, 1999 and gives Roche an
option to renew for additional three-year periods. In May 1998, the TesTcup
Agreement was amended to extend the termination date to January 1, 2003. The
TesTcup Agreement also provides that any patentable inventions relating to
TesTcup, whether developed by us or by Roche, or jointly, are the sole and
exclusive property of Roche. Roche agreed to pay or reimburse all reasonable
costs and expenses we incur related to the filing of patent applications
concerning TesTcup. Roche also agreed to pay for all equipment and supply all
reagents and other materials necessary to manufacture TesTcup, and owns all such
equipment and reagents. Roche's proprietary reagents are used in TesTcup. We
have the right to use such equipment and reagents during the term of the TesTcup
Agreement and are required to return all such equipment and reagents to Roche
upon expiration or termination of the agreement.
The TesTcup Agreement provides that we will manufacture TesTcup according
to defined specifications, subject to modification of quality control
specifications at Roche's sole discretion, and in accordance with all applicable
laws. Roche may use another vendor to manufacture TesTcup if Roche gives us
notice that the TesTcup products we are manufacturing do not meet the
specifications of the agreement, or that we are not providing sufficient
quantities of TesTcup on a timely basis, and we are unable to promptly cure the
problem or manufacture a sufficient quantity of products. We are responsible for
all costs, expenses and consequential damages under our contract with Roche for
all product recalls, returns and defects attributable to our manufacturing.
Production of TesTcup is based upon a "rolling forecast" of four three-calendar
month periods provided to us on a quarterly basis. Roche is not required to
forecast a minimum number of units, provided that the number of units for the
initial three-calendar month period of any rolling forecast may not vary in
excess of 20%. The agreement provides maximum order limitations, subject to the
our maximum production capacity. Orders for TesTcup are
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based upon written purchase orders delivered by Roche. We currently invoice
Roche only for products actually shipped, based upon predetermined contractual
unit prices. The unit price of TesTcup is determined by a formula derived in
part from our cost of production.
The TesTcup Agreement provides that Roche will offer to license TesTcup to
us in those markets or market segments in which Roche has determined that it
will not sell the product. In such event, we have no right to sublicense, assign
or transfer our rights under any such license without the prior written approval
of Roche. If we do not accept such an offer within the time period allotted
under the TesTcup Agreement, then Roche may offer such license to third parties
without any further obligation to us. The TesTcup Agreement also gives Roche a
right of first refusal to exclusively market any and all new antibody-based
drugs of abuse products we develop. The TesTcup Agreement also provides that we
and Roche each indemnify the other against damages resulting from our respective
performances under the agreement and certain other matters.
The TesTcup Agreement allows either party to terminate the agreement upon
certain breaches by the other party, or the bankruptcy or insolvency of the
other party, and allows Roche to terminate the agreement upon the occurrence of
certain FDA actions or objections. In the event that Roche does not renew its
agreement with us at the end of its term for reasons other than as a result of a
breach by us, Roche will pay us a fee to be negotiated by the parties, not to
exceed 3% of the net sales price of TesTcup, for each unit sold by Roche
following such termination. Neither Roche nor ANSYS may assign its rights under
the TesTcup Agreement to a third party without the prior written consent of the
other.
TesTstik Agreement. In September 1996, we entered into a development and
manufacturing agreement with Roche (the "TesTstik Agreement"). Pursuant to this
agreement, Roche paid us an $80,000 development fee to develop, in collaboration
with Roche, a single substance drug of abuse testing device that ultimately
became TesTstik. No further development fees have been received or are due to us
under this agreement. The TesTstik Agreement terminates in October 2002, and
gives Roche an option to extend the agreement for additional three-year terms,
or portions thereof. The TesTstik Agreement contains material terms
substantially identical to the TesTcup Agreement, including:
- terms relating to Roche's ownership of all rights to TesTstik, including
rights to related patents, and the equipment and reagents used to
manufacture TesTstik;
- payment by Roche of patent related fees and expenses;
- our exclusive manufacturing and supply rights;
- forecasting, ordering and licensing provisions;
- specifications; and
- quality control.
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The TesTstik Agreement also contains certain terms which differ from those
of the TesTcup Agreement, including:
- Roche will receive product pricing discounts based upon volume of
purchases and levels of automation;
- Roche does not have to pay us any fee in respect of Roche's net sales of
TesTstik if Roche does not renew its agreement with us after the end of
its term;
- Roche has a right of first refusal to exclusively market any and all new
products we develop using Roche's reagent technology during the term of
the agreement;
- Our financial liability is limited for certain breaches of the TesTstik
Agreement to the price Roche pays us for the TesTstik products;
- Roche and ANSYS each have equitable remedies in the event of a breach by
the other;
- We must pay Roche a license fee not to exceed ten percent (10%) of our
net sales in markets where Roche licenses TesTstik to us for sale because
Roche has decided not to sell TesTstik in that market;
- Roche or ANSYS has the right to assign their rights to an affiliate or a
successor in interest to substantially all of the assigning party's
assets without obtaining the other party's consent, provided that all
other assignments require the prior written consent of the non-assigning
party; and
- Pricing disputes following a modification by Roche of TesTstik
specifications shall be submitted to binding arbitration.
RELATIONSHIP WITH MOLECULAR INNOVATIONS
We have been collaborating with the scientific staff at Molecular
Innovations since 1995 to develop new products such as SCIP and XtraAMP. We are
designing and developing these products, as well as the related manufacturing
processes, Molecular Innovations has developed the nucleic acid chemistries for
these products. Under existing agreements with Molecular Innovations, we have
the exclusive right to manufacture and the non-exclusive right to market and
distribute SCIP until February 2002. We have the exclusive right to manufacture
XtraAMP, the exclusive right to market and distribute XtraAMP in the
bloodbanking markets, and the non-exclusive right to market and distribute
XtraAMP in all other markets, for five years from the launch of XtraAMP. In
exchange for these rights, we will pay a royalty to Molecular Innovations for
XtraAMP and SCIP products we sell. We have not paid any royalties to date to
Molecular Innovations. We are not obligated to pay any research and development
fees to Molecular Innovations. Under our agreements, Molecular Innovations holds
all intellectual property and other ownership rights to SCIP and XtraAMP. In
1998, we purchased less than a 5% equity interest in, and in March 1999 provided
convertible debt financing to, Molecular Innovations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Qualitative and Quantitative Disclosures about Market Risk." In
addition, we have designated a representative to the board of directors of
Molecular Innovations.
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INTELLECTUAL PROPERTY
Our ability to compete effectively will depend in part upon our ability to
develop and maintain the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We hold two United States
patents which expire in 2009 relating to our ON-SITE Alcohol product and are
currently pursuing three pending United States patent applications. We have also
filed two counterpart patent cooperation treaty applications as a first step in
obtaining counterpart foreign patents. We cannot be certain that our pending
patent applications will result in the issuance of any patents or that we will
receive any additional patents. In addition, because patent applications in the
United States are maintained in secrecy until patents issue, patent applications
are not generally published until many months or years after they are filed and
publication of technological developments in the scientific and patent
literature often occurs long after the date of such developments, we cannot be
certain that we were the first to invent the subject matter covered by the
patent applications, or that we were the first to file patent applications for
such inventions. Even if any patents are issued, they may not adequately protect
our intellectual property rights against competitors with similar technology. In
addition, any existing or future patents could be challenged, invalidated or
circumvented, and any right granted under the patents may not provide meaningful
protection to us. The failure of any patents to protect our technology would
make it easier for our competitors to offer similar products.
These products also incorporate reagent technologies owned by Roche. Roche
holds all of the intellectual property and other ownership rights of two of the
largest volume products we sell, TesTcup and TesTstik. Pursuant to development
and manufacturing agreements with Roche, we have the exclusive manufacturing
rights to the TesTstik product line until October 2002 and to TesTcup until
January 2003. If during the term of these agreements, or any renewals of these
agreements, an invention is made relating to TesTcup or TesTstik that results in
additional patentable rights to these products, all of those patentable rights
will belong to Roche. Roche may not aggressively protect its patents or licenses
on the products we manufacture. Roche's failure to protect its rights could
adversely affect our business.
We rely principally upon trade secrets, technical know-how and continuing
innovation to develop and maintain our competitive position, particularly with
respect to our membrane technologies. We generally enter into confidentiality
agreements with our employees and strategic partners, and attempt to control
access to and distribution of our confidential documentation and other
proprietary information. Notwithstanding these precautions, it may be possible
for a third party to copy or otherwise obtain and use our products, services or
technology without authorization, develop similar technology independently or
design around our and Roche's intellectual property. Accordingly, we may not be
able to protect our proprietary technology adequately, and our failure or
inability to do so could adversely affect our business. In addition, effective
copyright, trademark and trade secret protection may be unavailable or limited
in certain foreign countries. Moreover, litigation may be necessary in the
future to enforce either our or our strategic partners' intellectual property
rights, to protect their respective trade secrets or to determine the validity
and scope of proprietary rights of others, including its customers. Irrespective
of the validity or success of litigation, we would likely incur significant
costs and that litigation could divert management's efforts and other resources.
In addition, the litigation could result in the issuance of an injunction
against us, requiring us or our strategic partners to withdraw certain products
from the market, redesign certain products
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currently offered for sale or under development, or require them to obtain
licenses, which may not be available on reasonable terms, or at all. Any of the
foregoing could adversely affect our business. See "Risk Factors -- We May Not
Be Able to Adequately Protect or Enforce Our Intellectual Property Rights."
GOVERNMENT REGULATION
PREMARKET CLEARANCE AND APPROVAL. Unless an exemption applies, any medical
device that we and our strategic partners wish to market in the United States
must receive either 510(k) clearance or PMA approval in advance from the FDA
pursuant to the Federal Food, Drug, and Cosmetic Act. The 510(k) clearance
process usually takes from four to twelve months, but it can last longer. The
process of obtaining PMA approval is much more costly, lengthy and uncertain.
The PMA approval process generally requires from one to three years or even
longer. It is possible that we may not be able to obtain either 510(k) clearance
or PMA approval for any product we propose to market in the United States.
The FDA decides whether a device must undergo either the 510(k) clearance
or PMA approval process based upon statutory criteria. These criteria include
the level of risk that the agency perceives is associated with the device and a
determination of whether the product is within a type of device that is similar
to devices that are already legally marketed. Those devices deemed to pose
relatively less risk are placed in either Class I or II, which require the
manufacturer to submit a premarket notification requesting 510(k) clearance
unless an exemption applies. The premarket notification must demonstrate that
the proposed device is "substantially equivalent" in intended use and in safety
and effectiveness to a legally marketed "predicate device" that is either in
Class I, Class II, or is a "preamendments" Class III device (i.e., one that was
in commercial distribution before May 28, 1976) for which the FDA has not yet
decided to require PMA approval. In contrast, devices the FDA deems to pose the
greatest risk, or to be novel devices lacking a legally marketed predicate, are
placed in Class III and are required to undergo the PMA approval process. This
process requires the manufacturer to file a premarket approval application
presenting extensive testing data and other information to prove the safety and
effectiveness of the device to the FDA's satisfaction. To date, our diagnostic
tests and those of our collaborative partners, such as TesTcup, TesTstik,
ON-SITE Alcohol, TOXI-LAB and SPEC, have been considered Class II devices
eligible for 510(k) clearance or exempt Class I devices. We believe that most of
our products in development will receive similar treatment. However, one or more
of our future products, including potential line extensions to detect additional
substances, may be deemed Class III devices and required to undergo the time
consuming and costly PMA approval process.
After a device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in the intended use of the device, requires a new 510(k) clearance.
The FDA requires each manufacturer to make this determination in the first
instance, but the FDA can review any such decision. If the FDA disagrees with a
manufacturer's decision not to seek a new 510(k) clearance, the FDA can
retroactively require the manufacturer to submit a premarket notification
requiring 510(k) clearance. The FDA also can require the manufacturer to cease
marketing and/or recall the modified device until 510(k) clearance is obtained
and other penalties could apply. We and/or our collaborative partners have
modified some of our marketed devices, including TesTcup, TesTstik, ON-SITE
Alcohol, TOXI-LAB and SPEC, but have determined that, in our view, new 510(k)
clearances are not required for
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these products. We cannot be sure that the FDA would agree with any of our
decisions not to seek 510(k) clearance. If the FDA requires us to seek 510(k)
clearance for any modification, the FDA also may require us to cease marketing
and/or recall the modified device until we obtain a new 510(k) clearance.
RESEARCH AND INVESTIGATIONAL USE. In vitro diagnostic products can be
distributed for "research use only," commonly referred to as RUO, or
"investigational use only," commonly referred to as IUO, under conditions
prescribed in the FDA's regulations, before they receive 510(k) clearance or PMA
approval. The FDA requires manufacturers to include results from testing with
specimens taken from humans to support a 510(k) clearance or a PMA approval for
most diagnostic tests, including tests that we are developing. Investigational
use clinical studies of most other types of medical devices require the FDA's
prior approval of an investigational device exemption application, commonly
known as an IDE. Clinical studies of in vitro diagnostic tests, however, are
exempt from the IDE requirements, provided that the testing is noninvasive, does
not require an invasive sampling procedure that presents a significant risk,
does not intentionally introduce energy into the subject, and is not used as a
diagnostic procedure without confirmation by another, medically established,
test or procedure. In vitro diagnostic products distributed for clinical studies
under this exemption from the IDE requirement must be labeled, "For
Investigational Use Only. The performance characteristics of this product have
not been established," and products that are in the laboratory research phase of
development and meet the exemption criteria described in this paragraph must be
labeled "For Research Use Only. Not for use in diagnostic procedures."
Both RUO and IUO products must be distributed in a controlled manner to
assure that the products are not improperly used for purposes other than
research or investigation. In addition, all IUO clinical studies must comply
with the FDA's informed consent requirements and other requirements designed to
protect the integrity of the data and the health and welfare of patients. The
FDA has announced an intent to exercise heightened enforcement with respect to
RUO and IUO tests that are improperly commercialized prior to receipt of 510(k)
clearance or PMA approval.
We and/or our collaborative partners may distribute tests on an RUO or IUO
basis in order to gather clinical or other data to support 510(k) clearance or
PMA approval for products that we are developing. It is possible that the FDA
would not agree that our RUO or IUO distribution meets the requirements for the
IDE exemption or fails to comply with the prohibition against improper
commercialization and other requirements for RUO and IUO studies. Failure by us,
our collaborative partners or the recipients of the RUO or IUO tests to comply
with these regulatory limitations could cause the FDA to take enforcement
action, including revocation of the IDE exemption and/or the imposition of
restrictions on our distribution of RUO or IUO tests. Any such enforcement
action would adversely affect our ability to conduct the clinical studies
necessary to support marketing clearance or approval of our products in
development. It is possible that we may not be able to complete any research or
clinical study that we initiate or, if completed, that the study will not
provide data and information that will support a 510(k) clearance or PMA
approval.
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PERVASIVE AND CONTINUING REGULATION. After the FDA grants a manufacturer
approval to bring a device to market, a host of postmarket regulatory
requirements apply, including:
- labeling regulations;
- Quality System Regulation, which requires that manufacturers follow
elaborate design, testing, control, documentation and other quality
assurance procedures;
- Medical Device Reporting regulations, which require that
manufacturers report to the FDA certain types of adverse events
involving their products; and
- the FDA's general prohibition against promoting products for
unapproved or "off-label" uses.
Class II devices can be subject to additional special controls such as
performance standards, postmarket surveillance, patient registries and FDA
guidelines, that do not apply to Class I devices.
We are subject to inspection by the FDA to determine compliance with
regulatory requirements. If we fail to comply with the FDA's requirements, the
FDA can institute a wide variety of enforcement actions. The FDA sometimes
issues public warning letters, which, if received by us, could have an adverse
impact on our business. The FDA also can pursue more drastic remedies, such as:
- refusing our requests for 510(k) clearance or PMA approval of new
products;
- withdrawing product approvals already granted;
- requiring us to recall products; or
- asking a court to require us to pay civil penalties or criminal
fines, adhere to operating restrictions, or close down our
operations. Ultimately, criminal prosecution is available to the FDA
as punishment for egregious offenses. Any FDA enforcement action
could have an adverse effect on our business, financial condition
and results of operations.
We are also subject to various state, local and foreign regulatory
requirements in the various jurisdictions in which we do business. For example,
the California Department of Health must license and inspect our manufacturing
facility in California. The California Department of Health has a broad range of
enforcement options, some of which are not available to the FDA. Moreover,
state, local and foreign regulatory agencies work together on certain
enforcement issues. Any adverse action by state, local or foreign regulatory
agencies could have an adverse effect on our business, financial condition and
results of operations.
THE CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988 AND RELATED
REGULATIONS. The use of our products is also affected by the Clinical Laboratory
Improvement Amendments of 1988, commonly referred to as CLIA, and related
federal and state regulations which provide for regulation of laboratory
testing. The scope of these regulations includes quality control, proficiency
testing, personnel standards and federal inspections. CLIA categorizes tests as
"waived," "moderately complex" or "highly complex" on the basis of specific
criteria. Any future amendment of CLIA or the promulgation of additional
regulations impacting laboratory testing may adversely affect our business.
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OTHER REGULATIONS. We also are subject to numerous other federal, state and
local laws relating to matters such as: (1) safe working conditions; (2)
manufacturing practices; (3) environmental protection; (4) fire hazard control;
and (5) disposal of hazardous or potentially hazardous substances. We may incur
significant costs to comply with these laws and regulations in the future.
EMPLOYEES
As of March 31, 1999, we had 273 full-time employees, including 12
employees engaged in research and development, 11 engaged in sales and
marketing, 235 engaged in manufacturing operations and 15 engaged in general and
administrative activities. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
our employee relations are good.
FACILITIES
Our administrative, engineering and manufacturing facilities are located in
an 84,000 square foot facility in Lake Forest, California. We believe our
existing facility will be sufficient for our needs for the foreseeable future.
We have a fixed-price option to purchase this facility in February 2000 for $5.6
million.
LEGAL PROCEEDINGS
We are not involved in any material litigation and are not aware of any
claims which would give rise to material liability.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information with respect to our
executive officers and directors as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ---------------------------------------
<S> <C> <C>
Stephen K. Schultheis.......... 53 Chairman of the Board, President and
Chief Executive Officer
Steven P. Sidwell.............. 59 Executive Vice President -- Operations
Dennis D. Blevins, Ph.D. ...... 45 Vice President -- Research and
Development
Suzanne M. David............... 32 Chief Financial Officer and Secretary
Darrell J. Adams............... 51 Vice President -- Technical Support
Wilford C. Downs............... 47 Vice President of Operations --
Laboratory Products
Jeffrey G. Uding............... 44 Director of Operations -- On-Site
Products
Ronald J. Hall(1)(2)........... 58 Director
George D. Holmes(1)(2)......... 67 Director
John M. Morris(2).............. 50 Director
C. Michael O'Donnell, Ph.D..... 59 Director
William C. Shepherd............ 60 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
STEPHEN K. SCHULTHEIS has served as our President and Chief Executive
Officer since 1995, and Chairman of the Board since July 1998. Mr. Schultheis
joined ANSYS in 1990 as Director of Research and Development. He was promoted to
Vice President -- Research and Development in 1992 and promoted to Chief
Operating Officer in 1994. From 1986 to 1990, Mr. Schultheis was a professional
Consulting Engineer designing and developing products for various medical
diagnostic and commercial companies. From 1979 to 1986, he was Vice
President -- Engineering and Operations for Orangematic, Inc., a manufacturer of
food processing equipment. From 1974 to 1979, Mr. Schultheis was Vice
President -- Research and Development of Bennett Industries, a manufacturer of
commercial plastic products. From 1968 to 1973, he was a research engineer with
the United States Naval Undersea Center, engaged in weapons development. Mr.
Schultheis currently serves on the Board of Directors of Molecular Innovations,
Inc. Mr. Schultheis received a B.S. from California State University at San Jose
in 1968, and a M.S. in Mechanical Engineering from the University of Southern
California in 1972.
STEVEN P. SIDWELL has served as our Executive Vice President -- Operations
since 1998. From 1990 to 1998, Mr. Sidwell held a variety of positions with
Sensormedics Corporation, which is engaged in pulmonary function, exercise,
nutrition and metabolic function diagnosis, most recently as its Executive Vice
President of Operations. Prior to joining Sensormedics, Mr. Sidwell served as
President of National Service Concepts, a consumer electronics production
company, from 1988 to 1989. Mr. Sidwell received a B.S. in Chemical Engineering
from Purdue University in 1964 and a M.B.A. from the University of Pennsylvania
in 1968. Mr. Sidwell also serves on the board of directors of IOMED, Inc., a
publicly-traded drug delivery company.
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DENNIS D. BLEVINS, PH.D. has served as our Vice President -- Research and
Development since 1997. Dr. Blevins joined ANSYS in 1992, and served as Senior
Scientist from 1992 to 1994. From 1994 to 1996, Dr. Blevins served as SPEC
Division Manager. From 1996 to 1997 he served as Director of Research and
Development. From 1990 to 1992, Dr. Blevins was employed by S-CUBED, the
environmental laboratory division of Maxwell Laboratories. Prior to 1990, Dr.
Blevins held a number of research and development positions for laboratory
products and pharmaceutical companies. Dr. Blevins received a Ph.D. in
Analytical Chemistry in 1982 from the University of Arizona.
SUZANNE M. DAVID has served as our Chief Financial Officer and Secretary
since July 1998. Ms. David joined ANSYS in March 1996 as Controller. From 1991
to 1996, Ms. David served as the Accounting Manager for Corona Clipper, a
manufacturer of garden products where she was responsible for the preparation of
all financial reporting documents. Prior to 1991, Ms. David held a number of
finance positions with various manufacturing companies. Ms. David received a
B.A. in Business Administration from California State University Fullerton in
1992.
DARRELL J. ADAMS has served as our Vice President -- Technical Support
since 1988. Mr. Adams joined ANSYS in 1976 as a Technical Representative. From
1977 to 1981, Mr. Adams worked as Chief Technologist and Supervisor and
developed ANSYS' reanalysis and technical consultation services. From 1981 to
1988 Mr. Adams worked as Director of Technical Support. Mr. Adams received a
B.S. in Microbiology from Idaho State University in 1973.
WILFORD C. DOWNS has served as our Vice President of
Operations -- Laboratory Products since 1988. From 1981 to 1988, Mr. Downs was
Manufacturing and Distribution Manager for Marion Laboratories, Inc., a
pharmaceutical company. From 1974 to 1981, Mr. Downs served as Production
Manager for Analytical Systems, Inc., a manufacturer of diagnostic products. Mr.
Downs received a B.S. in Business Administration from the University of La
Verne, California in 1987.
JEFFREY G. UDING has served as our Director of Operations -- On-Site
Products since July 1997. Mr. Uding joined ANSYS in March 1996 as Manager of
On-Site Products. Prior to joining ANSYS, Mr. Uding held management positions
for Pacesetter Systems, a division of St. Jude Medical, and was Group Manager at
Mallinckrodt Medical (formerly Sorin Biomedical). Prior to that, Mr. Uding was
employed at Baxter Healthcare for approximately 12 years, holding positions in
manufacturing and research and development for medical, respiratory, parenterals
and kidney dialysis products. Mr. Uding received a B.S. from Roosevelt
University in Chicago in 1983. He received a M.S. in Management from University
of LaVerne, California in 1988 and a M.B.A. from Pepperdine University in 1991.
RONALD J. HALL has served as a director of ANSYS since 1991. Since 1990,
Mr. Hall has also been the Managing General Partner of Hall Capital Management,
the General Partner of Hall, Morris & Drufva II, L.P., an institutional venture
capital fund. From 1986 to 1990, Mr. Hall was Senior Vice President of First
Interstate Venture Capital Corporation, the venture capital subsidiary of First
Interstate Bank. From 1973 to 1983, Mr. Hall was also a General Partner of
Weiss, Peck & Greer, a New York and San Francisco-based venture capital and
money management firm. Mr. Hall is a director of Encad, Inc., a publicly-traded
manufacturer of wide format color ink-jet printers. He is also a director of
five privately-held companies which are part of the Hall, Morris & Drufva II,
L.P. portfolio.
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<PAGE> 55
GEORGE D. HOLMES has served as a director of ANSYS since 1988. Mr. Holmes
is a retired medical industry executive with 22 years of medical systems
management experience. From 1987 to 1996, Mr. Holmes was Chief Executive Officer
of Sensormedics Corporation. From 1984 to 1985, Mr. Holmes was Executive Vice
President of ADAC Laboratories, a manufacturer in nuclear medicine diagnostic
systems. From 1980 to 1984, Mr. Holmes served as the President of Squibb
Vitatek, Inc., a manufacturer of portable patient monitoring systems. Mr. Holmes
also served as the Chairman of the St. Joseph Hospital Foundation and a director
of the Oregon State March of Dimes. He was also Chairman of the Advisory Board
of the University of Southern California School of Medicine, Department of
Physical Therapy and Biokinesiology. He is currently a director of the American
Pulmonary Medicine Institute.
JOHN M. MORRIS has served as a director of ANSYS since 1988. Mr. Morris has
been a Managing Director in the Corporate Finance Department of Sutro & Co.
Incorporated since 1996. From 1995 to 1996, Mr. Morris was a Managing Director
in the Investment Banking Department of Wedbush Morgan Securities. From 1992 to
1995, Mr. Morris was a Principal at NewCap Partners, a private investment bank.
From 1988 to 1992, he was a partner in Hall, Morris and Drufva Capital
Management, the successor to First Interstate Venture Capital Corporation. From
1984 to 1988, Mr. Morris served in various investment banking capacities with
PaineWebber, Inc. and with Wedbush Morgan Securities. Mr. Morris is a founding
director of the Forum of Corporate Directors in Orange County and served as its
President in 1994.
C. MICHAEL O'DONNELL, PH.D. has served as a director of ANSYS since 1988.
Since 1996, Dr. O'Donnell has been President and Chief Executive Officer of EMS,
Inc., a manufacturer of electronic monitoring devices for parole and probation.
Prior to joining EMS, Dr. O'Donnell served in various capacities with ANSYS,
most recently as our Chairman of the Board, from 1994 to 1998. Prior to that he
served as President and Chief Executive Officer from 1988 to 1994, and served as
our Operations Manager from 1984 to 1988. During 1984, Dr. O'Donnell was a
private consultant. From 1982 to 1984, Dr. O'Donnell was President and Chief
Executive Officer of Clinetics Corporation, a manufacturer of immunodiagnostic
reagents.
WILLIAM C. SHEPHERD has served as a director of ANSYS since 1998. Mr.
Shepherd was previously Chairman of the Board of Allergan, Inc., a leading
provider of eye care and specialty pharmaceutical products, from January 1, 1996
to January 1, 1998. He was President and Chief Executive Officer of Allergan
from 1992 to 1996, and prior to that, served as the President and Chief
Operating Officer of Allergan from 1984 to 1992. Currently, Mr. Shepherd serves
as Chief Executive Officer and President of Allergan Specialty Therapeutics
Inc., a pharmaceutical research and development company. In addition, Mr.
Shepherd serves on the board of directors of Furon Company, a leading
international manufacturer of engineered polymer components, and Techniclone
Corporation, a biotechnology company engaged in the research and development of
therapeutics for the treatment of cancer.
There are no family relationships among any of our directors or executive
officers. Our certificate of incorporation provides for a classified Board of
Directors. Prior to the closing of this offering, the terms of office of the
Board of Directors will be divided into three classes, such that the terms of
Class I, Class II and Class III directors will expire at the annual meetings of
stockholders to be held in 2000, 2001 and 2002, respectively. The number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the Board of Directors. The
classification of
53
<PAGE> 56
the Board of Directors has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of members of the
Board of Directors. Executive officers are appointed to serve at the discretion
of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee consists of Ronald
J. Hall and George D. Holmes. The Audit Committee recommends the appointment of
independent public accountants for the annual audit of our financial statements
to the Board of Directors. The Audit Committee reviews the scope of the annual
audit and other services the auditors are asked to perform. This committee also
reviews the report on our financial statements prepared by the auditors
following the audit, and our accounting and financial policies in general. The
Audit Committee also reviews management's procedures and policies with respect
to our internal accounting controls.
The Compensation Committee consists of Ronald J. Hall, George D. Holmes and
John M. Morris. The Compensation Committee reviews and approves salaries,
benefits and bonuses for all executive officers. It reviews and recommends to
the Board of Directors on matters relating to employee compensation and benefit
plans. The Compensation Committee also administers our 1990 Stock Option Plan
and the 1997 Stock Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Board of Directors or
Compensation Committee and the board of directors of any other company.
DIRECTOR COMPENSATION
We currently pay our nonemployee directors $1,000 per board meeting
attended and reimburse out-of-pocket expenses incurred by our directors in
connection with attendance of board and committee meetings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We do not currently have any employment contracts with any of our executive
officers. Accordingly, the Board of Directors may terminate the employment of
any executive officer at any time in its discretion. We provide incentives such
as salary, benefits and option grants (which are typically subject to a three to
five year vesting schedule) to attract and retain executive officers and other
key employees. The Compensation Committee has the authority to provide for an
accelerated vesting of any outstanding options if an individual's employment is
terminated following an acquisition or certain hostile changes in control of
ANSYS.
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<PAGE> 57
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION. The following table summarizes the
compensation earned by, and paid to, our Chief Executive Officer and our four
most highly compensated executive officers, other than the Chief Executive
Officer, who received compensation in excess of $100,000 for the year ended
December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
------------------------------------- SHARES OF
OTHER ANNUAL COMMON STOCK
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) UNDERLYING OPTIONS(#)
- --------------------------------- --------- ------- --------------- ---------------------
<S> <C> <C> <C> <C>
Stephen K. Schultheis............ $180,909 $51,923 $4,609 60,000
Chairman, President and Chief
Executive Officer
Dennis D. Blevins, Ph.D.......... 92,259 21,037 2,580 --
Vice President -- Research and
Development
Darrell J. Adams................. 92,683 21,218 3,449 --
Vice President -- Technical
Support
Wilford C. Downs................. 88,470 20,254 840 --
Vice President of Operations --
Laboratory Products
Jeffrey G. Uding................. 89,690 19,846 2,714 --
Director of
Operations -- On-Site
Products
</TABLE>
- -------------------------
(1) We provide our officers with certain non-cash group life and health benefits
generally available to all salaried employees. These benefits are not
included in the above table pursuant to applicable Securities and Exchange
Commission rules. No Named Executive Officer received aggregate personal
benefits or perquisites that exceed the lesser of $50,000 or 10% of his
total annual salary and bonus.
(2) Represents our matching contribution under our 401(k) Plan to the respective
accounts of the Named Executive Officers.
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<PAGE> 58
STOCK OPTION GRANTS. The following table sets forth certain information
regarding options granted to the Named Executive Officers during 1998. We have
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS MARKET
UNDERLYING GRANTED TO EXERCISE PRICE ON
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION
NAME GRANTED(#)(2) 1998(3) SHARE GRANT(4) DATE
- --------------------------- ------------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Stephen K. Schultheis...... 60,000 34.2% $3.83 $4.74 04/08/08
Dennis D. Blevins,
Ph.D. ................... -- -- -- -- --
Darrell J. Adams........... -- -- -- -- --
Wilford C. Downs........... -- -- -- -- --
Jeffrey G. Uding........... -- -- -- -- --
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM($)(1)
--------------------------------------
NAME 0% 5% 10%
- --------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Stephen K. Schultheis...... $54,600 $233,458 $507,860
Dennis D. Blevins,
Ph.D. ................... -- -- --
Darrell J. Adams........... -- -- --
Wilford C. Downs........... -- -- --
Jeffrey G. Uding........... -- -- --
</TABLE>
- -------------------------
(1) The potential realizable value is calculated by assuming that (a) the stock
option price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire ten year term of the options, and (b) the
option is exercised and the underlying common stock sold on the last day of
its term for the appreciated stock price. The potential realizable value of
each option at 0% is based on the fair market value of the common stock on
the date of grant, $4.74 per share, minus the exercise price times the
number of shares underlying the option. The potential realizable value of
each option at 5% and 10% are based on the term of the option at its time of
grant (ten years). Each is calculated by assuming that the stock price on
the date of the grant appreciates at 5% or 10%, as applicable, compounded
annually for the entire term of the option, and that the option is exercised
and sold on the last day of its term for the appreciated stock price. Actual
gains, if any, on stock option exercises will depend on the future
performance of the common stock and the date at which the options are
exercised. Upon completion of this offering, the value of these options will
be $430,200, which is derived by subtracting the exercise price of the
option from the assumed initial public offering price of $11.00 per share.
(2) All options were granted under the 1997 Plan. Options granted in 1998 vest
over three years in 36 equal monthly installments.
(3) Based on an aggregate of 175,200 options granted to employees in 1998,
including the Named Executive Officers.
(4) The exercise price of the options was equal to the fair market value of the
underlying common stock on the grant date, as determined in good faith by
our Board of Directors. Notwithstanding this determination, we have recorded
compensation expense with respect to these options based upon the difference
between the exercise price and $4.74. This value was derived from a
combination of discounted cash flow methods, comparisons to publicly-traded
companies and book value. See Note 1 of Notes to Consolidated Financial
Statements for the determination of market value on the date of grant.
YEAR-END OPTION HOLDINGS. The following table sets forth certain aggregated
option information for the Named Executive Officers for the year ended December
31, 1998. None of the Named Executive Officers exercised stock options in 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS(1) OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen K. Schultheis........... 351,600 76,800 $3,616,800 $633,400
Dennis D. Blevins, Ph.D. ....... 44,000 4,000 $ 464,971 $ 39,729
Darrell J. Adams................ -- -- -- --
Wilford C. Downs................ -- -- -- --
Jeffrey G. Uding................ 17,600 18,400 $ 175,071 $183,129
</TABLE>
- -------------------------
(1) The value of unexercised options represents the difference between the
exercise price of the options and the assumed initial public offering price
of $11.00 per share.
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<PAGE> 59
STOCK OPTION PLANS
1990 STOCK OPTION PLAN. Our Stock Option Plan for Employees was adopted by
the Board of Directors and approved by the stockholders on October 10, 1990. A
total of 780,000 shares of common stock have been authorized for issuance under
the 1990 Plan. As of March 31, 1999, options for 597,820 shares were outstanding
under the 1990 Plan, and no shares remained available for future option grant.
Option grants under the 1990 Plan are made at the discretion of the plan
administrator. Eligible individuals (including officers and directors), in the
case of nonqualified stock options, may be granted options to purchase shares of
common stock at an exercise price not less than 85% of the fair market value of
the common stock, determined by the plan administrator on the grant date. Option
grants have a maximum term of ten years, subject to earlier termination if the
optionee's service with us ends.
The Compensation Committee administers the 1990 Plan. This committee has
complete discretion, within the scope of its administrative jurisdiction, to
determine: (1) which eligible individuals are to receive option grants; (2) the
time or times when such option grants are to be made; (3) the number of shares
subject to each such grant; (4) the fair market value of the option at the date
it is granted provided that the common stock is not publicly traded; (5) the
exercise or vesting schedule to be in effect for the option grant; (6) the
maximum term for which any granted option is to remain outstanding; and (7) the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws.
Optionees may pay the exercise price for their options in cash or with the
consent of the Compensation Committee, in shares of common stock. If the
exercise price is paid in shares of common stock, those shares are valued at
fair market value on the exercise date.
The plan administrator may cancel options outstanding under the 1990 Plan
in return for the grant of new options for the same or different number of
option shares. In that case, the exercise price per share is based on the fair
market value per share of common stock on the new grant date.
If we are acquired by merger or asset sale, each outstanding option under
the 1990 Plan not otherwise assumed by the successor company will immediately
vest. Such options will then be exercisable for all of the shares subject to
that option at the time, unless the option is assumed by the successor
corporation in the acquisition.
The Board of Directors may amend, modify or terminate the 1990 Plan at any
time. The 1990 Plan will terminate on October 11, 2000, unless sooner terminated
by the Board of Directors. No options may be granted under the 1990 Plan after
it is terminated.
1997 STOCK INCENTIVE PLAN. Our 1997 Stock Incentive Plan was adopted by the
Board of Directors and approved by the stockholders on January 23, 1998. A total
of 1,088,800 shares of common stock have been authorized for issuance under the
1997 Plan, and as of March 31, 1999, options to purchase 820,000 shares remained
available for grant under the 1997 Plan.
The 1997 Plan is divided into two separate components: the Option Grant
Program and the Stock Issuance Program. Under the Option Grant Program, eligible
individuals (including officers, non-employee Board members and consultants) may
be granted options to purchase shares of common stock at an exercise price not
less than 100% of their fair market value on
57
<PAGE> 60
the grant date as determined by the plan administrator. Under the Stock Issuance
Program, these individuals may be issued shares of common stock directly. The
individual may purchase the shares at a price not less than 100% of their fair
market value at the time of issuance; however, the purchase price per share
issued to a 10% stockholder may not be less than 110% of the fair market value
of the underlying common stock. Shares of common stock may also be granted as a
bonus tied to the performance of services.
The Compensation Committee administers the 1997 Plan. The plan
administrator has complete discretion to determine: (1) which eligible
individuals are to receive option grants or stock issuances under those
programs; (2) the time or times when such option grants or stock issuances are
to be made; (3) the number of shares subject to each such grant or issuance; (4)
the fair market value of the option at the date it is granted provided that the
common stock is not publicly traded; (5) the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws; (6) the vesting schedule to be in effect for the option grant
or stock issuance; and (7) the maximum term for which any granted option is to
remain outstanding.
Optionees may pay the exercise price for their options in cash or in shares
of common stock. If the exercise price is paid in shares of common stock, those
shares are valued at fair market value on the exercise date.
Once the common stock subject to the 1997 Plan has been registered under
Section 12 of the Securities Exchange Act of 1934, as amended, the options may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the plan administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options or the
purchase of their unvested shares. The plan administrator may allow these
optionees to deliver a full-recourse, interest-bearing promissory note in
payment of the exercise price. The note would also cover any associated
withholding taxes incurred in connection with such exercise or purchase.
If we are acquired by merger or asset sale, options outstanding under the
Option Grant Program which are not to be assumed by the successor corporation or
otherwise continued will automatically accelerate. All unvested shares under the
Option Grant and Stock Issuance Programs will immediately vest, unless our
repurchase rights with respect to those shares will be assigned to the successor
corporation. The plan administrator may grant options under the Option Grant
Program which accelerate upon an acquisition of ANSYS, whether or not those
options are assumed or continued. The plan administrator may also grant options
which accelerate if the optionee's service terminates within the 18 months
following an acquisition in which (1) those options are assumed or otherwise
continued and (2) the applicable repurchase rights do not terminate. The vesting
of outstanding shares under the Stock Issuance Program may be accelerated on
similar terms and conditions.
The Board of Directors may amend or modify the 1997 Plan at any time.
However, certain amendments to the 1997 Plan may require shareholder approval.
The 1997 Plan will terminate on the earliest of: (1) January 22, 2008; (2) the
date on which all shares available for issuance under the 1997 Plan have been
issued as fully-vested shares; or (3) the termination of all outstanding options
in connection with an acquisition of ANSYS.
OTHER OPTIONS. In December 1996, Stephen K. Schultheis, our Chairman,
President and Chief Executive Officer, was granted options to purchase 90,000
shares of common stock at an exercise price of $1.07 per share. These options
were nonqualified stock options and were not granted pursuant to the 1990 Plan
or the 1997 Plan.
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<PAGE> 61
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted by the Board of Directors
and approved by the stockholders in April 1999, and will become effective
immediately upon the execution of the underwriting agreement related to this
offering. The ESPP is designed to allow our eligible employees and those of our
participating subsidiaries to purchase shares of common stock, at semi-annual
intervals, through their periodic payroll deductions under the ESPP. We have
initially reserved 180,000 shares of our common stock for issuance under the
ESPP.
The ESPP will be implemented in a series of successive offering periods,
each with a maximum duration of 24 months. The initial offering period, however,
will start on the date the underwriting agreement related to this offering is
executed and will end on the last business day in July 2001. The next offering
period will start on the first business day in August 2001, and subsequent
offering periods will be set by our compensation committee.
ANSYS employees who are scheduled to work more than 20 hours per week for
more than five calendar months per year may join an offering period on the start
date or on any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of February and August of each year.
Individuals who become eligible employees after the start date of an offering
period may join the ESPP on any subsequent semi-annual entry date within that
offering period.
Payroll deductions may not exceed 15% of the participant's cash earnings,
and the accumulated payroll deductions of each participant will be applied to
the purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date. Semi-annual purchase
dates will be on the last business day of January and July each year. In no
event, however, may any participant purchase more than 1,000 shares on any
purchase date, and not more that 45,000 shares may be purchased in total by all
participants on any purchase date.
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day. All
participants in the terminated offering will be transferred to the new offering
period.
In the event of a change in control as defined in the ESPP, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such change in control. The purchase price will be equal to
85% of the fair market value per share on the participant's entry date into the
offering period in which the change in control occurs or, if lower, 85% of the
fair market value per share immediately prior to such change in control.
The following provisions will also be in effect under the ESPP:
- The ESPP will terminate no later than the last business day in July 2009.
- The Board of Directors may at any time amend, suspend or discontinue the
ESPP provided that any such termination will be effective immediately
following the close of any purchase interval. Certain amendments,
however, may require stockholder approval.
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<PAGE> 62
401(k) PLAN
We have an employee savings and retirement plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
The 401(k) Plan allows eligible employees to defer up to 15% of their pre-tax
earnings, subject to the Internal Revenue Service annual contribution limit
($10,000 in 1998). Eligible employees must be 20 1/2 years of age and have
worked at least 1,000 hours in a 12 consecutive month period. Employees may
first participate on the first day of the month following three months of
service.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in these
capacities, including liabilities under the Securities Act. Our bylaws provide
that we will indemnify our directors and officers to the fullest extent
permitted by law. The bylaws require ANSYS to advance litigation expenses, but
the director or officer must agree to repay such advances if he or she is not
entitled to indemnification. These rights do not exclude any other right such
persons may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Our certificate of incorporation provides that, pursuant to Delaware Law,
directors are not liable for money damages for breach of their fiduciary duty of
care to ANSYS and its stockholders. This provision does not eliminate the duty
of care. In certain circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware Law. In
addition, each director will still be subject to liability for (1) breach of the
duty of loyalty to ANSYS or its stockholders, (2) acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, (3)
actions leading to improper personal benefit to the director, and (4) payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or federal environmental laws.
In addition to the indemnification provided for in our bylaws, we have
entered into agreements to indemnify our executive officers and all of our
directors. This indemnification includes indemnity for certain expenses,
including attorneys' fees. It also includes indemnity for judgments, fines and
settlement amounts incurred in any action or proceeding. The indemnification
includes: (1) actions by or for ANSYS; (2) actions on account of services as an
executive officer or a director of ANSYS; and (3) actions on account of services
as an officer or a director of another company or enterprise if the services
were provided at our request.
The Securities and Exchange Commission is of the opinion that
indemnification of directors, officers and persons controlling ANSYS for
violations of the Securities Act is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We have also obtained directors' and officers' liability insurance for our
directors and executive officers.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 31, 1999
regarding the ownership of our common stock by: (a) each person whom we know to
own more than 5% of such shares of common stock; (b) each Named Executive
Officer; (c) each of our directors; and (d) all of our directors and executive
officers as a group.
The number of shares beneficially owned and the percentage of shares
beneficially owned are based on (1) 5,558,472 shares of common stock outstanding
as of March 31, 1999, and (2) 8,058,472 shares of common stock outstanding upon
consummation of this offering. Beneficial ownership is determined in accordance
with the rules and regulations of the Securities and Exchange Commission. Shares
subject to options that are exercisable currently or within 60 days following
March 31, 1999 are deemed to be outstanding and beneficially owned by the
optionee for the purpose of computing share and percentage ownership of that
optionee. They are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person. Except (1) as indicated in the
footnotes to this table, and (2) as affected by applicable community property
laws, all persons listed have sole and voting investment power with for all
shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
--------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Ronald J. Hall(2)(3)....................... 3,808,844 68.5% 47.3%
Hall, Morris & Drufva II, L.P.(3).......... 3,616,620 65.1 44.9
C. Michael O'Donnell, Ph.D. ............... 509,808 9.2 6.3
Stephen K. Schultheis(4)................... 453,450 7.7 5.4
Darrell J. Adams........................... 345,516 6.2 4.3
Wilford C. Downs........................... 345,516 6.2 4.3
George D. Holmes(5)........................ 54,000 * *
Dennis D. Blevins, Ph.D.(5)................ 45,320 * *
Jeffrey G. Uding(5)........................ 22,400 * *
John M. Morris(6).......................... -- * *
William C. Shepherd........................ 13,464 * *
All executive officers and directors as a
group
(12 persons)(7).......................... 5,642,851 92.7 65.7
</TABLE>
- -------------------------
* Less than one percent.
(1) The address for each of Messrs. O'Donnell, Schultheis, Adams and Downs is
c/o ANSYS at 25200 Commercentre Drive, Lake Forest, California 92630.
(2) Includes (a) 3,616,620 shares of common stock held by Hall, Morris & Drufva
II, L.P. and (b) 192,224 shares of common stock held by Mr. Hall's IRA. Mr.
Hall is the Managing General Partner of Hall Capital Management, which is
the General Partner of Hall, Morris & Drufva II, L.P. Mr. Hall disclaims
beneficial ownership of all of the shares held by Hall, Morris & Drufva II,
L.P.
(3) The address for Hall, Morris & Drufva II, L.P. and Mr. Hall is 26161 La Paz
Road, Suite E, Mission Viejo, California 92691.
(4) Includes 359,850 shares of common stock issuable upon exercise of vested
stock options.
(5) Consists solely of shares of common stock issuable upon exercise of vested
stock options.
(6) Excludes the shares of common stock that Mr. Morris may have a right to
receive in the event of an in kind distribution from or the dissolution of
Hall, Morris & Drufva II, L.P. See "Underwriting."
(7) Includes 526,103 shares of common stock issuable upon exercise of vested
stock options.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
The following summary of the capital stock of ANSYS and certain provisions
of our certificate of incorporation and bylaws does not purport to be complete.
It is qualified in its entirety by the provisions of the certificate and bylaws.
Copies of the certificate and bylaws have been filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
ANSYS is authorized to issue 30,000,000 shares of common stock. At March
31, 1999, 5,558,472 shares of common stock were deemed outstanding and held of
record by approximately 17 holders. Under the certificate and bylaws, holders of
common stock will not have cumulative voting rights after the common stock is
listed for trading on the Nasdaq National Market. Holders of shares representing
a majority of the voting power of common stock can elect all of the directors.
The holders of the remaining shares will not be able to elect any directors. The
shares of common stock offered pursuant to this offering, when issued, will be
fully paid and nonassessable and will not be subject to any redemption or
sinking fund provisions. Holders of common stock do not have any preemptive,
subscription or conversion rights.
Holders of common stock are entitled to receive those dividends the Board
of Directors declares, subject to the rights of preferred stockholders and the
terms of any existing or future agreements between ANSYS and its debtholders.
Since its inception, we have not declared or paid any cash dividends on our
common stock. We presently intend to retain future earnings, if any, for use in
the operation and expansion of our business. We do not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of ANSYS, common stockholders are
entitled to share ratably in all assets legally available for distribution (1)
after payment of all debts and other liabilities and (2) subject to the prior
rights of any holders of outstanding shares of preferred stock.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock. The preferred stock may be issued in series from time to time as the
Board of Directors determines. The Board of Directors determines the
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions of the preferred stock, unless they are fixed in
our certificate of incorporation. The characteristics of different series of
preferred stock may differ with respect to: (1) dividend rates; (2) amounts
payable on liquidation; (3) voting rights; (4) conversion rights; (5) redemption
provisions; (6) sinking fund provisions; and (7) other matters. The Board of
Directors may authorize preferred stock senior to the common stock with respect
to dividends and the distribution of assets on liquidation. The Board of
Directors may also set limitations and restrictions on payment of common stock
dividends while any shares of preferred stock are outstanding. No stockholder
approval is required for the Board of Directors to issue preferred stock with
voting and conversion rights which could adversely affect the voting power of
the holders of common stock.
We believe that the ability to issue preferred stock without the expense
and delay of a special stockholders' meeting will provide us with increased
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs that might arise. This also permits the Board of
Directors to issue preferred stock containing
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<PAGE> 65
terms which could impede the completion of a takeover attempt, subject to
certain limitations imposed by the securities laws. The Board of Directors will
make any determination to issue such shares based on its judgment as to the best
interests of ANSYS and its stockholders at the time of issuance. This could
discourage an acquisition attempt or other transaction which stockholders might
believe to be in their best interests or in which they might receive a premium
for their stock over the then market price of the stock.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws contain provisions that may
make it more difficult to acquire control of ANSYS by various means. These
provisions could deprive the stockholders of opportunities to realize a premium
on the shares of common stock owned by them. In addition, they may adversely
affect the prevailing market price of the stock. These provisions are intended
to: (1) enhance the likelihood of continuity and stability in the composition of
the Board of Directors and in the policies formulated by the Board of Directors;
(2) discourage transactions which may involve an actual or threatened change in
control of ANSYS; (3) discourage tactics that may be used in proxy fights; (4)
encourage persons seeking to acquire control of ANSYS to consult first with the
Board of Directors to negotiate the terms of any proposed business combination
or offer; and (5) reduce our vulnerability to an unsolicited proposal for a
takeover that does not contemplate the acquisition of all outstanding shares of
ANSYS or that is otherwise unfair to our stockholders.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; FILLING VACANCIES AND
AMENDMENT. Our certificate of incorporation provides that the Board of Directors
will consist of between five and nine members, with the exact number to be fixed
from time to time by resolution adopted by a majority of the directors then in
office. Currently, the number is set at six. Prior to the closing of this
offering, the terms of office of the Board of Directors will be divided into
three classes, such that the terms of Class I, Class II and Class III directors
will expire at the annual meetings of stockholders to be held in 2000, 2001 and
2002, respectively. The number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the Board of Directors. The classification of the Board of Directors has the
effect of requiring at least two annual stockholder meetings, instead of one, to
replace a majority of members of the Board of Directors. Subject to the rights
of the holders of any outstanding series of preferred stock, the certificate
authorizes only the Board of Directors to fill vacancies, including newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority representation on the Board of Directors by enlarging
the Board of Directors and filling the new directorships with its own nominees.
The certificate also provides that directors may be removed by stockholders only
for cause and only by the affirmative vote of holders of two-thirds of the
outstanding shares of voting stock.
SPECIAL STOCKHOLDER MEETINGS. The certificate of incorporation provides
that special meetings of the stockholders for any purpose or purposes, unless
required by law, shall be called by: (1) the President or Secretary pursuant to
a request in writing of the President; (2) a majority of the entire Board of
Directors; or (3) stockholders owning not less than 50% of the entire voting
stock of ANSYS then issued and outstanding. A special meeting may not be held
absent such a written request. The request shall state the purpose or purposes
of the proposed meeting. This limitation on the right of stockholders to call a
special meeting could make it more difficult for stockholders to initiate
actions that are
63
<PAGE> 66
opposed by the Board of Directors. These actions could include the removal of an
incumbent director or the election of a stockholder nominee as a director. They
could also include the implementation of a rule requiring stockholder
ratification of specific defensive strategies that have been adopted by the
Board of Directors with respect to unsolicited takeover bids. In addition, the
limited ability of the stockholders to call a special meeting of stockholders
may make it more difficult to change the existing Board of Directors and
management.
WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS. Our certificate of
incorporation prohibits the taking of stockholder action by written consent
without a meeting. These provisions will make it more difficult for stockholders
to take action opposed by the Board of Directors.
AMENDMENT OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION. Our
certificate of incorporation generally requires the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock in order to amend
any provisions of the certificate concerning: (1) the removal or appointment of
directors; (2) the authority of stockholders to act by written consent; (3) the
required vote to amend the certificate; (4) calling a special meeting of
stockholders; (5) procedure and content of stockholder proposals concerning
business to be conducted at a meeting of stockholders; and (6) director
nominations by stockholders. These voting requirements will make it more
difficult for minority stockholders to make changes in the certificate that
could be designed to facilitate the exercise of control over ANSYS. On the other
hand, the requirement for approval by at least a two-thirds stockholder vote
will enable minority stockholders to prevent the majority stockholders from
amending these provisions of the certificate. Following the completion of this
offering, our present directors and executive officers and their respective
affiliates will beneficially own approximately 65.7% of our common stock. This
gives them veto power with respect to any stockholder action or approval
requiring either a two-thirds vote or a simple majority.
REGISTRATION RIGHTS
Following this offering, the holders of approximately 5,498,112 shares of
common stock (the "Registrable Securities") will be entitled to rights with
respect to the registration of their shares under the Securities Act. If ANSYS
proposes to register securities under the Securities Act, either for its own
account or the account of other securityholders, it must give notice of the
registration to the holders of Registrable Securities. These holders are
entitled to include their Registrable Securities in the registration, subject to
certain marketing and other limitations. We generally must bear the expenses,
other than underwriting discounts and sales commissions, of these registrations.
We may in certain circumstances defer such registrations. The underwriters have
the right, subject to certain limitations, to limit the number of Registrable
Securities included in such registrations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation.
64
<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, ANSYS will have 8,058,472 shares of common
stock outstanding (8,433,472 shares if the underwriter's over-allotment option
is exercised in full), assuming no exercise of options after March 31, 1999. Of
this amount, the 2,500,000 shares offered by this prospectus will be available
for immediate sale in the public market as of the date of this prospectus. All
of the remaining 5,558,472 shares are "restricted securities" as that term is
defined by Rule 144 of the Securities Act. Our directors, executive officers and
certain other stockholders who collectively hold an aggregate of 5,540,072
shares of common stock, together with ANSYS, have agreed pursuant to the
underwriting agreement and other agreements that they will not sell any common
stock without the prior written consent of Vector Securities International, Inc.
for a period of 180 days from the date of this prospectus except that we may,
without this consent, grant options and sell shares pursuant to the 1997 Plan.
Following the 180 day period, 332,764 shares of common stock will be eligible
for sale in the public market without restriction, including shares eligible for
sale under Rule 144(k). An additional 5,207,308 shares will be eligible for sale
under Rule 144, subject to certain volume, manner of sale and other restrictions
of Rule 144. In addition, 18,400 shares will be available for sale in the public
market 90 days following the date of this prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of (1) 1% of the then outstanding shares of common stock (approximately 80,585
shares immediately after this offering) or (2) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of ANSYS at any time
during the 90 days immediately preceding the sale and who has beneficially owned
his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after this offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Any employee or consultant who purchased his or her shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of March 31, 1999, the holders of options to purchase
approximately 956,620 shares of common stock will be eligible to sell their
shares upon the expiration of the 180-day Lockup Period, subject in certain
cases to vesting of such options.
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<PAGE> 68
We intend to file a registration statement on Form S-8 under the Securities
Act as soon as practicable after the completion of this offering to register
1,956,620 shares of common stock subject to outstanding stock options or
reserved for issuance under our employee benefit plans. This registration will
permit the resale of such shares by nonaffiliates in the public market without
restriction under the Securities Act, upon completion of the 180-day Lockup
Period. Shares held by affiliates registered under such registration statement
will be subject to Rule 144 volume limitations. See "Management -- Executive
Compensation," "-- Stock Option Plans," and "-- 1999 Employee Stock Purchase
Plan."
In addition, some stockholders have registration rights with respect to
5,498,112 shares of common stock. Registration of these securities would render
them freely tradeable without restriction under the Securities Act. See "Risk
Factors -- Future Sales of Our Common Stock Could Cause the Price of Our Common
Stock to Decline."
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<PAGE> 69
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom Vector Securities International, Inc. and
Sutro & Co. Incorporated are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to the underwriters, the following
respective number of shares of common stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Vector Securities International, Inc...................
Sutro & Co. Incorporated...............................
---------
Total........................................ 2,500,000
=========
</TABLE>
John M. Morris, a director of ANSYS, is a Managing Director of Sutro & Co.
Incorporated, one of the representatives of the underwriters. Mr. Morris has an
equity interest in Hall, Morris & Drufva II, L.P. which, upon an in kind
distribution from or upon its liquidation will result in Mr. Morris receiving
approximately 125,000 shares of ANSYS common stock.
The underwriting agreement makes the obligations of the underwriters
subject to a number of conditions, including the absence of any material adverse
change in our business and the receipt of certificates, opinions and letters
from us, our counsel and our experts. If any of the shares are purchased, the
underwriters must purchase all shares of common stock being offered. If any
underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the defaulting underwriters do not exceed 10% of the shares
offered, some or all of the remaining underwriters must assume the obligations
of the defaulting underwriters.
The underwriters propose to offer the shares of common stock directly to
the public at the offering price set forth on the cover page of this prospectus.
They propose to offer shares to certain dealers at that price less a concession
not in excess of $ per share. The underwriters may allow $ to selected
dealers and the dealers may reallow a concession not in excess of $ per
share to other dealers. After the initial public offering of the shares, the
offering price and other selling terms may be changed by the representatives of
the underwriters.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock at the public offering price, less underwriting discounts
and commissions. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
Subject to a number of conditions, if this option is exercised, each underwriter
must purchase approximately the same percentage of over-allotment shares as the
number of shares set forth next to each underwriter's name in the preceding
table bears to the total number of shares listed in that table. We must sell
these shares to the underwriters if the option is exercised.
The following table summarizes the compensation we will pay to the
underwriters:
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Total underwriting discounts and
commissions..................... $ $ $
</TABLE>
67
<PAGE> 70
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may sell shares in excess of the
offering size, creating a syndicate short position. In addition, the
underwriters may bid for and purchase shares of common stock in the open market
to cover syndicate short positions or to stabilize the price of the common
stock. Finally, the underwriting syndicate may reclaim selling concessions from
syndicate members in this offering if the syndicate repurchases previously
distributed common stock in syndicated covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make with respect to these
liabilities.
The officers, directors and certain other of our stockholders have agreed
that they will not, without the prior written consent of Vector Securities
International, Inc., offer, sell or otherwise dispose of: (1) any shares of our
common stock; (2) options or warrants to acquire shares of our common stock; or
(3) securities exchangeable for or convertible into shares of common stock owned
by them for a period of 180 days after the date of this prospectus subject to
certain exceptions. We have agreed not to offer, sell or otherwise dispose of
any of the above securities for a period of 180 days after the date of this
prospectus. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares of common
stock included in this offering will be determined by negotiations between us
and the representatives of the underwriters. Among the factors considered in
determining the price will be:
- the history of, and the prospects for, our business and the industry in
which we compete;
- an assessment of our management and the present state of our development;
- our past and present revenues and earnings;
- the prospects for growth of our revenues and earnings;
- the current state of the economy in the United States;
- the current level of economic activity in the industry in which we
compete and in related or comparable industries; and
- currently prevailing conditions in the securities markets, including
current market valuations of publicly-traded companies that are
comparable to ANSYS.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "ASDI."
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<PAGE> 71
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for ANSYS by Brobeck, Phleger & Harrison LLP,
Irvine, California. Certain legal matters relating to this offering will be
passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois.
EXPERTS
The consolidated financial statements of ANSYS as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998,
included in this prospectus and the registration statement have been audited by
McGladrey & Pullen, LLP, independent auditors, as set forth in their report
appearing on page F-2 of this prospectus and in the registration statement. The
financial statements are included in reliance upon that report given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
ANSYS has filed a registration statement on Form S-1 with the Securities
and Exchange Commission under the Securities Act with respect to the common
stock offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to ANSYS and the common
stock, please see the registration statement and the exhibits and schedules
filed with the registration statement. Statements contained in this prospectus
concerning the contents of any contract of other document referred to are not
necessarily complete. Please refer to the copy of such contract or other
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by such reference. The registration statement,
including the exhibits and schedules thereto, may be inspected without charge at
the principal office of the Commission in Washington, D.C. Copies of all or any
part of the registration statement may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Such copies may also be inspected and copied
at the Commission's Regional Offices located at:
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and
- 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained at prescribed rates by mail from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants,
including ANSYS, that file electronically.
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<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
ANSYS Diagnostics, Inc.
Lake Forest, California
We have audited the accompanying consolidated balance sheets of ANSYS
Diagnostics, Inc. and subsidiary as of December 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ANSYS
Diagnostics, Inc. and subsidiary as of December 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
Anaheim, California
April 23, 1999
F-2
<PAGE> 74
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
------------------------ MARCH 31, PRO FORMA
1997 1998 1999 (NOTE 11)
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (Note 4)
Current Assets
Cash and cash equivalents................... $1,515,000 $ 3,176,000 $ 2,686,000 $ 426,000
Accounts receivable, less allowance for
doubtful accounts: 1997 $20,000; 1998
$20,000; 1999 $20,000 (Note 8)........... 1,707,000 2,093,000 3,471,000 3,471,000
Income taxes receivable..................... -- 420,000 -- --
Inventories (Note 2)........................ 1,528,000 1,581,000 1,652,000 1,652,000
Prepaid expenses............................ 99,000 40,000 63,000 63,000
Deferred income taxes (Note 7).............. 89,000 120,000 120,000 120,000
---------- ----------- ----------- -----------
Total current assets................... 4,938,000 7,430,000 7,992,000 5,732,000
Equipment and Leasehold Improvements, net
(Note 3).................................... 1,567,000 4,199,000 4,224,000 4,224,000
Intangibles and Other Assets.................. 160,000 262,000 989,000 989,000
Deferred Income Taxes (Note 7)................ 228,000 -- -- --
---------- ----------- ----------- -----------
Total assets........................... $6,893,000 $11,891,000 $13,205,000 $10,945,000
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit (Note 4)................ $ 733,000 $ -- $ -- $ --
Current maturities of long-term debt (Note
4)....................................... -- 224,000 232,000 232,000
Accounts payable............................ 553,000 1,439,000 1,514,000 1,514,000
Accrued liabilities......................... 121,000 433,000 527,000 527,000
Accrued compensation........................ 311,000 281,000 345,000 345,000
Income taxes payable........................ 218,000 -- 100,000 100,000
---------- ----------- ----------- -----------
Total current liabilities.............. 1,936,000 2,377,000 2,718,000 2,718,000
---------- ----------- ----------- -----------
Deferred Income Taxes (Note 7)................ -- 180,000 180,000 180,000
---------- ----------- ----------- -----------
Long-term Debt, net of current maturities
(Note 4).................................... -- 1,670,000 1,610,000 1,610,000
---------- ----------- ----------- -----------
Commitments and Contingencies (Notes 6 and 8)
Stockholders' Equity (Notes 4, 5, 9 and 11)
Preferred stock, par value $.0001 per share;
5,000,000 shares authorized: 18,000
issued and outstanding in 1997 and 1998,
none outstanding pro forma ($3,600,000
aggregate liquidation preference
including $1,800,000 of undeclared
cumulative dividends at December 31, 1998
amounting to $100 per share)............. -- -- -- --
Common stock, par value $.0001 per share;
30,000,000 shares authorized: issued and
outstanding 1,880,784 shares in 1997;
1,875,184 shares in 1998; 1,917,144
shares in 1999; 5,558,472 shares pro
forma.................................... -- -- -- 1,000
Additional paid-in capital.................. 1,818,000 1,834,000 1,965,000 1,564,000
Retained earnings........................... 3,139,000 5,830,000 6,732,000 4,872,000
---------- ----------- ----------- -----------
Total stockholders' equity............. 4,957,000 7,664,000 8,697,000 6,437,000
---------- ----------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $6,893,000 $11,891,000 $13,205,000 $10,945,000
========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 75
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (Note 8)............ $8,126,000 $10,698,000 $18,964,000 $4,427,000 $5,495,000
Cost of goods sold............ 3,058,000 5,099,000 9,703,000 2,164,000 2,768,000
---------- ----------- ----------- ---------- ----------
Gross profit........... 5,068,000 5,599,000 9,261,000 2,263,000 2,727,000
---------- ----------- ----------- ---------- ----------
Operating expenses:
Research and development.... 434,000 773,000 700,000 174,000 207,000
Selling, general and
administrative
(Notes 6 and 9).......... 2,770,000 2,876,000 4,049,000 902,000 1,016,000
---------- ----------- ----------- ---------- ----------
3,204,000 3,649,000 4,749,000 1,076,000 1,223,000
---------- ----------- ----------- ---------- ----------
Operating income.............. 1,864,000 1,950,000 4,512,000 1,187,000 1,504,000
Interest income (expense)..... 55,000 59,000 (46,000) (4,000) (9,000)
---------- ----------- ----------- ---------- ----------
Income before income taxes.... 1,919,000 2,009,000 4,466,000 1,183,000 1,495,000
Provision for income taxes
(Note 7).................... 718,000 803,000 1,775,000 467,000 593,000
---------- ----------- ----------- ---------- ----------
Net income (Note 9).... $1,201,000 $ 1,206,000 $ 2,691,000 $ 716,000 $ 902,000
========== =========== =========== ========== ==========
Less preferred stock dividends
(Note 5).................... 180,000 180,000 180,000 45,000 45,000
---------- ----------- ----------- ---------- ----------
Income available to
common
stockholders........ $1,021,000 $ 1,026,000 $ 2,511,000 $ 671,000 $ 857,000
========== =========== =========== ========== ==========
Earnings per share (Note 9):
Basic....................... $ 0.46 $ 0.54 $ 1.33 $ 0.36 $ 0.46
========== =========== =========== ========== ==========
Diluted (Note 10)........... $ 0.19 $ 0.20 $ 0.45 $ 0.12 $ 0.15
========== =========== =========== ========== ==========
Weighted average shares
outstanding:
Basic....................... 2,230,408 1,900,951 1,890,204 1,880,784 1,879,795
========== =========== =========== ========== ==========
Diluted (Note 10)........... 6,057,018 5,863,517 5,941,534 5,898,334 6,047,276
========== =========== =========== ========== ==========
Pro forma earnings per share
(Note 11):
Basic....................... $ 0.47 $ 0.16
=========== ==========
Diluted..................... $ 0.44 $ 0.14
=========== ==========
Pro forma weighted average
shares outstanding (Note
11):
Basic....................... 5,736,987 5,726,578
=========== ==========
Diluted..................... 6,146,989 6,252,731
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 76
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------ ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS
--------- ------ --------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 18,000 $ -- 2,307,408 $ -- $$2,011,000 $1,072,000
Exercise of stock options.... -- -- 4,080 -- 1,000 --
Common stock purchased for
retirement................ -- -- (250,704) -- (195,000) (117,000)
Net income................... -- -- -- -- -- 1,201,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1996..... 18,000 -- 2,060,784 -- 1,817,000 2,156,000
Common stock purchased for
retirement................ -- -- (180,000) -- (1,000) (223,000)
Compensation expense related
to stock options (Note
9)........................ -- -- -- -- 2,000 --
Net income................... -- -- -- -- -- 1,206,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1997..... 18,000 -- 1,880,784 -- 1,818,000 3,139,000
Exercise of stock options.... -- -- 18,400 -- 19,000 --
Common stock purchased for
retirement................ -- -- (24,000) -- (111,000) --
Compensation expense related
to stock options (Note
9)........................ -- -- -- -- 108,000 --
Net income................... -- -- -- -- -- 2,691,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1998..... 18,000 -- 1,875,184 -- 1,834,000 5,830,000
Exercise of stock options
(unaudited)............... -- -- 41,960 -- 25,000 --
Compensation expense related
to stock options
(unaudited)............... -- -- -- -- 33,000 --
Tax benefit relating to
exercise of stock options
(unaudited)............... -- -- -- -- 73,000 --
Net income (unaudited)....... -- -- -- -- -- 902,000
------ ------ --------- ------ ---------- ----------
Balance, March 31, 1999
(unaudited).................. 18,000 $ -- 1,917,144 $ -- $1,965,000 $6,732,000
====== ====== ========= ====== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 77
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income...................... $1,201,000 $ 1,206,000 $ 2,691,000 $ 716,000 $ 902,000
Depreciation and amortization... 328,000 315,000 395,000 99,000 134,000
Deferred taxes.................. (42,000) (17,000) 377,000 -- --
Noncash compensation (Note 9)... -- 2,000 108,000 -- 33,000
Changes in operating assets and
liabilities:
Accounts receivable.......... (371,000) (626,000) (386,000) (58,000) (1,377,000)
Income taxes receivable...... -- -- (420,000) -- 420,000
Inventories.................. (279,000) (513,000) (53,000) (77,000) (70,000)
Prepaid expenses............. (18,000) (63,000) 59,000 (52,000) (23,000)
Accounts payable and accrued
liabilities................ 328,000 148,000 366,000 289,000 518,000
Income taxes payable......... (29,000) 173,000 (218,000) 22,000 173,000
---------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities.... 1,118,000 625,000 2,919,000 939,000 710,000
---------- ----------- ----------- ----------- -----------
Cash Flows from Investing
Activities
Purchase of equipment and
leasehold improvements....... (270,000) (1,231,000) (2,202,000) (1,470,000) (440,000)
Purchase of intangibles and
other assets................. -- (172,000) (125,000) -- (733,000)
---------- ----------- ----------- ----------- -----------
Net cash (used in)
investing activities.... (270,000) (1,403,000) (2,327,000) (1,470,000) (1,173,000)
---------- ----------- ----------- ----------- -----------
Cash Flows from Financing
Activities
Borrowings on line of credit.... -- 883,000 -- 1,266,000 --
Payments on line of credit...... -- (150,000) (733,000) (200,000) --
Common stock purchased for
retirement................... (312,000) (224,000) (111,000) -- --
Common stock issued............. 1,000 -- 19,000 5,000 25,000
Long-term borrowings............ -- -- 2,000,000 -- --
Payments on long-term debt...... -- -- (106,000) -- (52,000)
---------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities.............. (311,000) 509,000 1,069,000 1,071,000 (27,000)
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash
equivalents............. 537,000 (269,000) 1,661,000 540,000 (490,000)
Cash and Cash Equivalents
Beginning of period............. 1,247,000 1,784,000 1,515,000 1,515,000 3,176,000
---------- ----------- ----------- ----------- -----------
End of period................... $1,784,000 $ 1,515,000 $ 3,176,000 $ 2,055,000 $ 2,686,000
========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 78
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
ANSYS Diagnostics, Inc. and its wholly owned subsidiary, ANSYS
International, Inc., a foreign sales corporation (together, the "Company"),
develops, manufactures and markets drug testing products and specialty
laboratory and research products. The Company's drug testing products are used
for pre-employment screening, random employee testing, government mandated
testing, parole and probation monitoring and hospital-based testing. The
Company's specialty laboratory and research products are used for sample
preparation, including solid phase extraction and nucleic acid isolation. The
Company's products are subject to approval and regulation by the Food and Drug
Administration (FDA) and other state and foreign regulatory agencies.
Reorganization:
In April 1999, the Company entered into a restructuring and reorganization
arrangement. As a result of the restructuring and reorganization, the Company
(1) increased the number of authorized common shares to 30,000,000 shares, (2)
increased the number of authorized preferred shares to 5,000,000 shares, (3)
reduced the par value of the common and preferred stock to $.0001 per share and
(4) effected a 1.2-for-one stock split. This reorganization has been accounted
for as if it occurred as of the beginning of the earliest period presented in
these consolidated financial statements. In addition, the Company is in the
process of reincorporating in Delaware.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany balances
and transactions are eliminated in consolidation.
Cash and cash equivalents:
The Company classifies all highly liquid investments with original
maturities of less than 90 days at the time of purchase as cash and cash
equivalents.
F-7
<PAGE> 79
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company, periodically throughout the year, has amounts on deposit that
exceed the insured limit.
Accounts receivable:
Most of the Company's business activity is with distributors of medical
products who are primarily located in the United States. The Company grants
normal trade credit to creditworthy customers without requiring collateral or
other security.
Inventories:
Inventories are stated at the lower of average cost or market.
Inventory quantities in excess of one year's usage, based upon the
preceding twelve months' usage, are appropriately reserved in order to
approximate their net realizable values. In addition, management reviews the
remaining inventory for damaged goods, technologically obsolete goods and excess
supply for potential reserves.
Equipment and leasehold improvements:
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are provided on a straight-line method over (1) five to ten years
for manufacturing equipment, (2) five years for office equipment, and (3) the
lesser of (a) the asset life, (b) ten years, or (c) the remaining term of the
facility lease for leasehold improvements. Amortization of leasehold
improvements is included in depreciation expense.
Intangibles and other assets:
Intangibles and other assets consist primarily of a licensing agreement and
an investment in an unrelated company. The licensing agreement is being
amortized on a straight-line basis over its estimated useful life of five years.
The investment in an unrelated company consists of preferred stock which
represents less than five percent of that company's outstanding ownership and is
accounted for at its historical cost of $125,000. This investment also includes,
as of March 31, 1999, a $300,000 convertible note receivable from this same
company. This note bears interest at 9% and is due with all accrued interest on
July 31, 2000 and is carried at its historical cost.
Revenue recognition:
The Company recognizes revenue when goods are shipped to the customer.
F-8
<PAGE> 80
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and development:
The Company expenses research and development costs as they are incurred.
The Company incurs research and development costs in developing new products.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets and liabilities are recognized for deductible temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Stock-based compensation:
The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the consideration to be received is at
least equal to fair value at the measurement date. Nonemployee stock-based
transactions are accounted for under the requirements of the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting Standard
(SFAS) No. 123, Accounting for Stock Based Compensation, which requires
compensation to be recorded based on the fair value of the securities issued or
the services received, whichever is more reliably measurable. The Company's
compensation committee determines the exercise price based upon their estimation
of the fair value of the common stock at the date of grant. The Company
estimates market value at the measurement date by utilizing a combination of the
discounted cash flows method, comparison to comparable publicly traded companies
and book value. In addition, the Company periodically uses an outside valuation
specialist to validate its estimation of fair value.
Earnings per share:
Basic earnings per share is computed as net income available to common
stockholders divided by the weighted average number of common shares outstanding
for the period.
Diluted earnings per share is computed as net income available to common
stockholders plus dividends on Series B convertible preferred stock divided by
the weighted average number of common shares outstanding for the period plus
potential dilutive common shares issuable through convertible preferred stock
and stock options.
F-9
<PAGE> 81
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments:
The Company's financial instruments consist primarily of cash, the bank
line of credit and long term debt. The carrying value of these instruments is
considered to be representative of their fair value.
Determining impairment on long-term assets:
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
Segment information:
In accordance with FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company has determined the products are
all classified as in vitro diagnostic products that are produced using similar
methods and are regulated by the FDA. In addition, the Company has analyzed the
type and class of customers, and the product distribution methods, and has
determined that the Company has one reportable segment.
Unaudited interim financial information
The interim financial information presented herein as of and for the three
months ended March 31, 1998 and 1999 reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal and recurring nature. The interim
financial information is not intended to be a complete presentation in
accordance with generally accepted accounting principles. The March 31, 1999
interim financial statements are not necessarily indicative of the results in
the entire fiscal year ending December 31, 1999, or any subsequent period.
F-10
<PAGE> 82
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 2. INVENTORIES
Inventories consisted of the following at December 31, 1997 and 1998 and at
March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials......................... $ 633,000 $ 754,000 $ 801,000
Work in process....................... 363,000 433,000 509,000
Finished goods........................ 532,000 394,000 342,000
----------- ----------- -----------
$ 1,528,000 $ 1,581,000 $ 1,652,000
=========== =========== ===========
</TABLE>
NOTE 3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following at December
31, 1997 and 1998 and March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Manufacturing equipment............... $ 989,000 $ 1,045,000 $ 1,573,000
Office equipment...................... 985,000 1,134,000 1,297,000
Leasehold improvements................ 1,302,000 2,181,000 2,339,000
----------- ----------- -----------
3,276,000 4,360,000 5,209,000
Depreciation and amortization......... (2,796,000) (1,850,000) (1,972,000)
----------- ----------- -----------
480,000 2,510,000 3,237,000
Construction in progress.............. 1,087,000 1,689,000 987,000
----------- ----------- -----------
$ 1,567,000 $ 4,199,000 $ 4,224,000
=========== =========== ===========
</TABLE>
Depreciation and amortization expense on equipment and leasehold
improvements for the years ended December 31, 1996, 1997 and 1998 and the three
months ended March 31, 1999 was $328,000, $303,000, $370,000 and $124,000,
respectively.
NOTE 4. BANK LINE OF CREDIT AND LONG-TERM DEBT
Bank line of credit:
The Company has a revolving credit agreement with a bank to provide for
short-term financing. Under the terms of this agreement, the Company may borrow
up to $1,000,000. Borrowings under this line are restricted to a certain
percentage of accounts receivable and inventories and bear interest at the
lender's prime rate plus 0.125% (totaling 7.875% as of December 31, 1998). There
were no borrowings under this line of credit agreement at December 31, 1998 or
March 31, 1999. Borrowings under the agreement at December 31, 1997 totaled
$733,000. The agreement is secured by the Company's accounts receivable,
inventories, equipment and intangibles. It also contains certain financial
covenants, restricts the payment of dividends and redemption of stock, and
expires in May 1999. The
F-11
<PAGE> 83
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 4. BANK LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
Company was in violation of the negative covenant relating to stock redemptions.
However, this violation has been waived by the bank. As of December 31, 1998,
the Company had approximately $1,000,000 in availability under this credit
facility.
Long-term debt:
At December 31, 1998, the Company has an 8.42% term loan that is secured by
inventory, equipment and intangibles and is due in monthly installments of
$32,000 through June 2005. Aggregate future annual maturities on this debt as of
December 31, 1998 are as follows: 1999 $224,000; 2000 $245,000; 2001 $266,000;
2002 $290,000; 2003 $316,000; 2004 $345,000; and 2005 $208,000 (total
$1,894,000).
NOTE 5. CAPITAL STOCK
The following summarizes the capitalization of the Company as of December
31, 1998:
<TABLE>
<CAPTION>
ISSUED AND ADDITIONAL
AUTHORIZED OUTSTANDING PAID-IN
CAPITAL STOCK SHARES SHARES PAR VALUE CAPITAL
------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Preferred Series A.................. 4,000 4,000 $.0001 $ 400,000
Preferred Series B.................. 14,000 14,000 .0001 1,400,000
Preferred, undesignated............. 4,982,000 -- -- --
Common.............................. 30,000,000 1,875,184 .0001 34,000
----------
$1,834,000
==========
</TABLE>
Preferred dividends on the Series A and B preferred stock are cumulative at
a rate of $10 per annum and are payable, if declared, on a quarterly basis. No
dividends shall be paid to common stockholders until the preferred stockholders
have received all unpaid accumulated dividends. The Company has not declared any
preferred stock dividends. Such accumulated dividends totaled $1,800,000 ($100
per share) at December 31, 1998 and $1,620,000 ($90 per share) at December 31,
1997.
In the event of liquidation, the holders of the Series A and Series B
preferred stock are entitled to receive an amount per share equal to $100
(carrying value is also $100 per share) plus any unpaid accumulated dividends,
prior to any distribution of the assets of the Company to the common
stockholders.
Series A Redeemable Preferred Stock -- Upon consent of the holders of the
majority of common shares, the Company may redeem the outstanding shares of
Series A redeemable preferred stock at a per share price of $100 plus all unpaid
accumulated dividends.
Series B Convertible Preferred Stock -- Each share of Series B convertible
preferred stock is convertible, at the option of the holder, into a number of
common shares
F-12
<PAGE> 84
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 5. CAPITAL STOCK (CONTINUED)
determined by dividing $100 by the conversion price as defined. The conversion
price at December 31, 1998 is $0.384475 per common share. Each share of Series B
convertible preferred stock shall automatically be converted into common shares,
at the then effective conversion price, in the event of a public offering.
Series B convertible preferred stock carries full voting rights and powers, with
the exception of voting on the redemption of Series A redeemable preferred
stock. Each holder of Series B convertible preferred stock is entitled to 164.7
votes per share held. The Company has reserved 3,641,328 shares of common stock
for issuance upon conversion of Series B preferred stock.
The Company is prohibited from repurchasing any common stock (other than
the shares originally issued to employees of the Company, of which 1,262,904
shares are outstanding as of December 31, 1998, which the Company has the right
to repurchase at the original issuance price or the fair market value, under
certain circumstances) prior to redeeming all the Series A preferred stock and
paying all accumulated dividends. Holders of the Series A preferred stock have
no voting rights or powers except in certain circumstances as defined in the
Company's articles of incorporation.
Preferred stock, undesignated -- The Board of Directors has the authority,
without action by the stockholders, to designate and issue any authorized but
unissued shares of preferred stock in one or more series and to designate the
rights, preferences and privileges of each such series.
NOTE 6. OPERATING LEASE
The Company leases its facilities under the terms of an operating lease
agreement that expires in December 2007. The agreement calls for initial monthly
lease payments of approximately $48,000 plus the payment of insurance, property
tax and normal maintenance. The Company has the option to purchase these
facilities for $5,578,000 in February 2000.
The approximate future minimum annual lease payments as of December 31,
1998 are as follows: 1999 $575,000; 2000 $605,000; 2001 $634,000; 2002 $634,000;
2003 $699,000; thereafter $2,976,000 (total $6,123,000).
Rent expense for the years ended December 31, 1996, 1997 and 1998 and the
three months ended March 31, 1999 was $557,000, $580,000, $697,000 and $167,000,
respectively.
F-13
<PAGE> 85
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 7. INCOME TAXES
The income tax provision for the years ended December 31, 1996, 1997 and
1998 consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Federal
Current................................. $590,000 $623,000 $1,820,000
Deferred................................ (37,000) (13,000) (315,000)
-------- -------- ----------
553,000 610,000 1,505,000
-------- -------- ----------
State
Current................................. 170,000 197,000 332,000
Deferred................................ (5,000) (4,000) (62,000)
-------- -------- ----------
165,000 193,000 270,000
-------- -------- ----------
Total income tax provision........... $718,000 $803,000 $1,775,000
======== ======== ==========
</TABLE>
A reconciliation of income tax expense recorded to the amount of income tax
expense that would result from applying the federal statutory rate to income
before income taxes for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................. 35% 35% 35%
State taxes, net of federal benefit............... 6 6 6
Foreign sales corporation benefit................. (1) (1) (1)
Benefit of income taxed at lower rates............ (1) (1) (1)
Other............................................. (2) 1 1
-- -- --
Effective tax rate........................... 37% 40% 40%
== == ==
</TABLE>
The major components of the Company's deferred tax assets and liabilities
as of December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Deferred tax assets
Equipment and leasehold improvements.......... $228,000 $ --
State taxes................................... 65,000 63,000
Inventories................................... 19,000 58,000
Accounts receivable reserves.................. 8,000 8,000
Other......................................... (3,000) (9,000)
-------- ---------
Total deferred tax assets.................. $317,000 $ 120,000
======== =========
Deferred tax liabilities
Equipment and leasehold improvements.......... $ -- $(180,000)
======== =========
</TABLE>
F-14
<PAGE> 86
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 7. INCOME TAXES (CONTINUED)
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of December 31, 1997 and 1998 as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current assets.................................. $ 89,000 $ 120,000
Noncurrent assets............................... 228,000 --
Noncurrent liabilities.......................... -- (180,000)
</TABLE>
NOTE 8. FOREIGN SALES, MAJOR CUSTOMERS AND DEPENDENCE ON SUPPLIERS
Foreign sales:
Net sales for the years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 included sales to customers located outside
the United States. The sales to foreign customers are primarily denominated in
U.S. dollars, and the Company has not experienced any significant foreign
currency gains or losses.
Net foreign sales for the years ended December 31, 1996, 1997 and 1998 and
for the three months ended March 31, 1999 by country are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Australia............ $ 227,000 $ 349,000 $ 323,000 $ 82,000
Canada............... 169,000 158,000 147,000 28,000
China................ 173,000 107,000 108,000 19,000
Denmark.............. 65,000 59,000 78,000 27,000
England.............. 165,000 150,000 217,000 64,000
Germany.............. 166,000 235,000 210,000 75,000
Other................ 290,000 203,000 144,000 38,000
---------- ---------- ---------- --------
$1,255,000 $1,261,000 $1,227,000 $333,000
========== ========== ========== ========
</TABLE>
Major customers:
Net sales for the years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 include sales to the following customers:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Customer A........... $1,387,000 $4,503,000 $12,276,000 $3,811,000
Customer B........... 1,560,000 * * *
Customer C........... 1,296,000 * * *
</TABLE>
F-15
<PAGE> 87
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 8. FOREIGN SALES, MAJOR CUSTOMERS AND DEPENDENCE ON SUPPLIERS (CONTINUED)
Accounts receivable balance due from these customers as of December 31,
1996, 1997 and 1998 and as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Customer A........... $ 224,000 $1,169,000 $ 889,000 $2,285,000
Customer B........... -- * * *
Customer C........... 6,000 * * *
</TABLE>
- -------------------------
* Net sales to this customer are less than 10% of the total net sales for the
years ended December 31, 1997 and 1998 and for the three months ended March
31, 1999.
Dependence on Roche Diagnostic Systems, Inc.:
The Company is highly dependent on its arrangement with Roche Diagnostic
Systems, Inc. ("Roche") (Customer A above) for the distribution and marketing of
three of its principal products, which accounted for 17%, 42%, 65% and 69% of
the Company's net sales during the years ended December 31, 1996, 1997, and 1998
and the three months ended March 31, 1999, respectively. Two of these three
products were jointly developed by the Company in collaboration with Roche. The
Company's agreements with Roche, which expire in 2002 and 2003 by their terms,
provide that the Company has exclusive manufacturing rights to the products.
These agreements do not require Roche to purchase any minimum amounts of
product, and the Company does not have the ability to sell or market these
products directly. Roche holds all intellectual property and other ownership
rights to these products, and has no obligation to renew or extend the Company's
manufacturing rights upon expiration of the Company's agreements with Roche.
Dependence on suppliers:
The Company currently relies on several third party suppliers for the
manufacture of certain key components used in its products. In particular, the
Company receives all of its requirements for the nitrocellulose membranes used
in the TesTcup and TesTstik products from a single approved supplier. Under the
Roche agreements, Roche provides all of the Company's requirements for certain
liquid reagents in the TesTcup and TesTstik products. Such components are custom
made biomaterials manufactured specifically for the Company's products. The
Company does not have any long-term supply agreements with either of these
suppliers or an alternate approved supplier for these components. In addition,
the Company also has additional single source suppliers for other components
used in the manufacture of certain products.
F-16
<PAGE> 88
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
During 1998 the Company adopted the 1997 Stock Option Plan (the "1997
Plan"). At December 31, 1998, the Company has reserved 1,329,780 shares of
common stock for issuance under the 1997 Stock Incentive Plan, the Stock Option
Plan for Employees of ANSYS, Inc. (1990) (the "1990 Plan") and certain officer
and employee nonqualified stock options. The options vest immediately or over a
three- to five-year period.
The 1997 Plan is divided into two separate components; the Option Grant
Program and the Stock Issuance Program. Under the Option Grant Program, eligible
individuals (including officers, non-employee board members and consultants) may
be granted options to purchase shares of common stock at an exercise price not
less than 100% of their fair market value on the grant date as determined by the
plan administrator. Under the Stock Issuance Program, these individuals may be
issued shares of common stock directly. The individual may purchase the shares,
at a price not less than 100% of their fair market value as determined by the
plan administrator at the time of issuance; however, the purchase price per
share issued to a 10% stockholder may not be less than 110% of the fair market
value of the underlying common stock. Shares may also be granted as a bonus tied
to the performance of services. A total of 1,088,800 shares of common stock have
been authorized for issuance under the 1997 Plan, as amended. At December 31,
1998, there were 388,800 remaining options available for grant under the 1997
Plan prior to the plan's amendment, which on March 31, 1999 increased the number
of authorized options to purchase shares by an additional 488,800.
The 1990 Plan was adopted during 1990 and a total of 780,000 shares of
common stock have been authorized for issuance under the 1990 Plan. Options
granted under the 1990 Plan are made at the discretion of the plan
administrator. Option grants have a maximum term of ten years, subject to
earlier termination if the optionee's service with the Company is discontinued.
Options granted under the 1990 Plan vested over three to five years. At December
31, 1998, there were no remaining options available under the 1990 Plan.
In addition, during 1996, the Company granted options to purchase 90,000
shares of common stock to an officer that are nonqualified stock options and
were not granted pursuant to the 1990 Plan or the 1997 Plan. These options vest
over three years.
F-17
<PAGE> 89
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
A summary of the status of the 1990 Plan, the 1997 Plan and certain officer
and employee nonqualified stock options and changes for the years ended December
31, 1996, 1997 and 1998 and for the three months ended March 31, 1999 is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
---------------------------------------------------------------- ENDED
1996 1997 1998 MARCH 31, 1999
------------------- ------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 483,180 $0.43 723,780 $0.64 777,780 $0.74 940,980 $1.45
Granted............... 244,800 1.05 54,000 2.13 211,200 3.97 60,000 4.97
Exercised............. (4,080) 0.29 -- -- (18,400) 1.05 (41,960) 0.60
Forfeited............. (120) 0.29 -- -- (29,600) 1.05 (2,400) 4.97
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at end of
period................ 723,780 $0.64 777,780 $0.74 940,980 $1.45 956,620 $1.70
======= ===== ======= ===== ======= ===== ======= =====
Exercisable at end of
period................ 332,969 $0.38 486,186 $0.51 688,920 $0.94 665,375 $1.02
======= ===== ======= ===== ======= ===== ======= =====
Remaining options
available under the
Plans................. 75,744 21,744 388,800 820,000
======= ======= ======= =======
Weighted average minimum
value per option
granted during the
period:
At market price..... 244,800 $0.68 -- $ -- -- $ -- -- $ --
======= ===== ======= ===== ======= ===== ======= =====
Below market
price............. -- $ -- 54,000 $1.29 211,200 $2.22 60,000 $4.97
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
F-18
<PAGE> 90
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
A further summary of options outstanding at December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING OPTIONS
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.29 318,780 3.32 years 318,780
0.52 40,200 2.10 years 40,200
0.75 120,000 6.50 years 120,000
1.04 36,000 7.20 years 17,600
1.07 160,800 7.91 years 107,202
2.13 54,000 8.96 years 18,003
3.83 175,200 9.32 years 49,135
4.64 36,000 9.83 years 18,000
------- -------
940,980 688,920
======= =======
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations to account for the stock options issued
to employees and directors. Had compensation cost for the stock option plans
been determined based on the fair value at the date consistent with the method
of FASB Statement No. 123, Accounting for Stock-Based Compensation, the
Company's net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported.................... $1,201,000 $1,206,000 $2,691,000
Pro forma...................... 1,178,000 1,153,000 2,451,000
Basic earnings per share:
As reported.................... 0.46 0.54 1.33
Pro forma...................... 0.45 0.51 1.20
Diluted earnings per share:
As reported.................... 0.19 0.20 0.45
Pro forma...................... 0.19 0.19 0.41
</TABLE>
The minimum value of options granted under the Company's Stock Option Plan
was estimated on the date of grant with the following assumptions: no dividend
yield, risk-free interest 6.4% to 6.5% in 1996, 6.6% in 1997 and 6.3% 1998, and
expected lives of ten years. The effects of applying SFAS No. 123 are not
indicative of future amounts since, among other reasons, the requirements of the
Statement have been applied only to options granted after December 1994.
The 54,000 stock options granted by the Company in 1997 and the 211,200
stock options granted by the Company in 1998 were granted at an exercise price
that was less than the fair value of common stock per share. The Company
recorded related compensation expense during the years ended December 31, 1997
and 1998 of $2,000 and
F-19
<PAGE> 91
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
$108,000, respectively, based on an estimated fair value per share of $2.98 for
54,000 shares, $4.74 for 175,200 shares and $7.38 for 36,000 shares. In
addition, the Company recorded compensation expense of $33,000 for the three
months ended March 31, 1999 reflecting the compensation attributable to the 1997
and 1998 grants and the additional options to acquire 60,000 shares issued
during the three months ended March 31, 1999 with an estimated fair value per
share of $10.00.
On March 31, 1999, the Company adopted an Employee Stock Purchase Plan
covering substantially all full-time employees and has reserved 180,000 shares
of its common stock for issuance under this plan. This plan will become
effective immediately upon the execution of the underwriting agreement related
to this offering.
NOTE 10. DILUTED EARNINGS PER SHARE
Diluted earnings per share is computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income available to common
stockholders............. $1,021,000 $1,026,000 $2,511,000 $ 671,000 $ 857,000
Plus impact of assumed
conversion of Series B
preferred stock.......... 140,000 140,000 140,000 35,000 35,000
---------- ---------- ---------- ---------- ----------
Income available to common
stockholders plus assumed
conversion............... $1,161,000 $1,166,000 $2,651,000 $ 706,000 $ 892,000
========== ========== ========== ========== ==========
Weighted average shares
outstanding.............. 2,230,408 1,900,951 1,890,204 1,880,784 1,879,795
Plus incremental shares
from Series B preferred
stock conversion......... 3,641,328 3,641,328 3,641,328 3,641,328 3,641,328
Stock options.............. 185,282 321,238 410,002 376,222 526,153
---------- ---------- ---------- ---------- ----------
Diluted weighted average
shares outstanding....... 6,057,018 5,863,517 5,941,534 5,898,334 6,047,276
========== ========== ========== ========== ==========
</TABLE>
NOTE 11. PRO FORMA INFORMATION
The Company plans to redeem the Series A preferred stock, convert the
Series B preferred stock into common stock and pay the cumulative dividends on
the preferred stock in connection with a planned public stock offering. The
objective of the pro forma financial information included in these financial
statements is to show what the significant effects might have been on the
historical stockholders' equity and earnings per share.
F-20
<PAGE> 92
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 11. PRO FORMA INFORMATION (CONTINUED)
Pro forma balance sheet at March 31, 1999:
The following pro forma balance sheet adjustments have been made assuming
the following transactions occurred as of March 31, 1999:
- Series A preferred stock has been redeemed for $400,000 in cash.
- Series B preferred stock has been converted into 3,641,328 shares of
common stock.
- An estimated $1,860,000 in cumulative dividends on the Series A and B
preferred stock is paid in cash.
Pro forma earnings per share:
Pro forma basic earnings per share is computed as net income divided by the
pro forma weighted average number of common shares outstanding for the period.
Pro forma common shares outstanding for all periods presented in the computation
of pro forma basic earnings per share include (1) the number of shares of common
stock that the Series B preferred stock will be converted into upon the
completion of the initial public offering and (2) the number of equivalent
common shares to be issued in the initial public offering necessary to redeem
the Series A preferred stock and pay the cumulative dividends on the Series A
and B preferred stock through the estimated effective date of the initial public
offering at the assumed public offering price per share.
F-21
<PAGE> 93
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 11. PRO FORMA INFORMATION (CONTINUED)
Pro forma diluted earnings per share is computed as net income divided by
the pro forma weighted average number of common shares outstanding for the
period as computed above plus dilutive potential common shares that could occur
from common shares issuable through stock options. Pro forma basic and diluted
shares for the year ended December 31, 1998 and for the three months ended March
31, 1999 are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Basic:
Weighted average shares outstanding............... 1,890,204 1,879,795
Pro forma conversion of Series B preferred
stock.......................................... 3,641,328 3,641,328
Pro forma common shares to be issued necessary to:
Redeem Series A preferred stock................ 36,364 36,364
Pay cumulative dividends on preferred stock.... 169,091 169,091
--------- ---------
Pro forma weighted average shares outstanding..... 5,736,987 5,726,578
========= =========
Diluted:
Pro forma weighted average shares outstanding..... 5,736,987 5,726,578
Stock options..................................... 410,002 526,153
--------- ---------
Pro forma diluted weighted average shares
outstanding.................................... 6,146,989 6,252,731
========= =========
</TABLE>
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1996 1997 1998 1998 1999
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest................... $ -- $ 16,000 $ 148,000 $ 25,000 $ 42,000
======== ======== ========== ======== ========
Income taxes............... $618,000 $646,000 $2,002,000 $446,000 $ --
======== ======== ========== ======== ========
Supplemental disclosures of
non-cash investing and
financing activities:
Accounts payable incurred
for purchase of
equipment and leasehold
improvements............ $ -- $ -- $ 452,000 $ -- $165,000
======== ======== ========== ======== ========
</TABLE>
F-22
<PAGE> 94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS DATED , 1999
ANSYS LOGO
2,500,000 SHARES
COMMON STOCK
Vector Securities International, Inc. Sutro & Co. Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 5
Forward-Looking Statements................... 15
Use of Proceeds.............................. 16
Dividend Policy.............................. 16
Capitalization............................... 17
Dilution..................................... 18
Selected Consolidated Financial Data......... 19
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.............................. 21
Business..................................... 30
Management................................... 51
Principal Stockholders....................... 61
Description of Capital Stock................. 62
Shares Eligible for Future Sale.............. 65
Underwriting................................. 67
Legal Matters................................ 69
Experts...................................... 69
Additional Information....................... 69
Index to Consolidated Financial Statements... F-1
</TABLE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON
STOCK IN JURISDICTIONS WHERE IT IS UNLAWFUL TO DO SO. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.
-------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD registration fees. All of
the expenses below will be paid by ANSYS.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
Registration fee............................................ $ 9,591
NASD filing fee............................................. 3,950
Nasdaq National Market listing fee.......................... 70,000
Blue sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 225,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar fees........................... 30,000
Miscellaneous............................................... 51,459
--------
Total............................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our bylaws provide that we will indemnify our directors
and officers to the fullest extent permitted by law and require us to advance
litigation expenses upon our receipt of an undertaking by the director or
officer to repay such advances if it is ultimately determined that the director
or officer is not entitled to indemnification. Our bylaws further provide that
rights conferred under such bylaws do not exclude any other right such persons
may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Our certificate of incorporation provides that, pursuant to Delaware law,
our directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to ANSYS and our stockholders. This provision
in the certificate of incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company or our stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemption's that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
II-1
<PAGE> 96
In addition, our certificate of incorporation (Exhibit 3.1 to this
registration statement) provides that we shall indemnify our directors and
officers if such persons acted: (1) in good faith; (2) in a manner reasonably
believed to be in or not opposed to our best interests; and (3) with respect to
any criminal action or proceeding, with reasonable cause to believe such conduct
was lawful. The certificate of incorporation also provides that, pursuant to
Delaware law, our directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to our company and our stockholders.
This provision in the certificate of incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to ANSYS for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemption's that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The certificate of incorporation further
provides that we are authorized to indemnify our directors and officers to the
fullest extent permitted by law through the bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise. We intend to obtain
directors' and officers' liability insurance in connection with this offering.
In addition, we have has entered or, concurrently with this offering, will
enter, into agreements to indemnify our directors and certain of our officers in
addition to the indemnification provided for in the certificate of incorporation
and bylaws. These agreements will, among other things, indemnify our directors
and certain of our officers for certain expenses (including attorneys fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in our right, on account of services by
that person as a director or officer of ANSYS or as a director or officer of any
subsidiary of ANSYS, or as a director or officer of any other company or
enterprise that the person provides services to at the request of ANSYS.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of ANSYS and its officers and directors, and
by ANSYS of the underwriters, for certain liabilities arising under the
Securities Act or otherwise.
II-2
<PAGE> 97
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by ANSYS since January 1, 1996
involving sales of our securities that were not registered under the Securities
Act of 1933, as amended.
Since January 1, 1996, the Registrant has issued stock options under its
1990 Plan and 1997 Plan to certain eligible officers, directors and employees to
purchase an aggregate of 480,000 shares of common stock. In addition, on
December 12, 1996 the Registrant issued options to purchase 90,000 shares of
common stock to Stephen K. Schultheis, then its President and Chief Executive
Officer, which options were not granted pursuant to any plan.
None of the optionees paid any cash consideration for such options. Such
options did not involve a "sale" of securities; and, accordingly, registration
was not required. The following table sets forth the grant date, number of
options, current exercise price and class of optionees for all of such options.
<TABLE>
<CAPTION>
GRANT DATE NO. OF OPTIONS EXERCISE PRICE CLASS OF OPTIONEES
---------- -------------- -------------- ------------------
<S> <C> <C> <C>
01/01/96 to 05/31/96 72,000 $1.04 Employee
03/01/96 to 12/31/96 82,800 $1.07 Employee
12/12/96 90,000 $1.07 Officer
12/18/97 54,000 $2.13 Employee
04/08/98 108,000 $3.83 Employee
07/01/98 67,200 $3.83 Officer
10/16/98 18,000 $4.64 Director
11/16/98 18,000 $4.64 Director
01/22/99 60,000 $4.97 Employee
</TABLE>
In March 1999, the Registrant issued 41,960 shares of its common stock to
four employees upon exercise of their vested stock options. In April 1998, the
Registrant also issued 18,400 shares of its common stock to a former employee
upon exercise of his vested stock options. In addition, in April 1996 the
Registrant issued 4,080 shares to another former employee upon exercise of his
vested stock options.
The sale and issuance of securities in the above transactions were deemed
to be exempt from registration under the Securities Act by virtue of Section
4(2) or Rule 701 thereof, or Regulation D, as transactions by an issuer not
involving a public offering. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
II-3
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of ANSYS to be filed with the
Delaware Secretary of State in May 1999
3.2 Bylaws of ANSYS
4.1 Specimen certificate representing shares of common stock of
the Company
5.1* Form of Opinion of Brobeck Phleger & Harrison LLP
10.1 Form of Indemnification Agreement
10.2* Stock Option Plan for Employees of ANSYS, together with form
of Stock Option Agreement (and related Notice of Grant of
Option), Stock Purchase Agreement and Stock Issuance
Agreement
10.3* 1997 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.4+* Commercial Agreement dated as of April 1, 1993 by and
between Roche Diagnostic Systems, Inc. and ANSYS
10.5* Amendment to Commercial Agreement between Roche Diagnostic
Systems, Inc. and ANSYS dated May 1, 1998
10.6+* Development and Manufacturing Agreement dated as of
September 1, 1996 by and between Roche Diagnostic Systems,
Inc. and ANSYS
10.7+* First Amendment to Development and Manufacturing Agreement
between Roche Diagnostic Systems, Inc. and ANSYS dated as of
September 25, 1998
10.8* Standard Industrial Commercial Single-Tenant Lease -- Net
dated November 1, 1996 between Makena Properties and ANSYS
10.9* Form of International Distributorship Agreement for ANSYS
10.10* Form of Distributorship Agreement for ANSYS
10.11* Registration Rights Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS
10.12* Management Subscription Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS
10.13* $2,000,000 Promissory Note Change in Terms Agreement dated
June 1, 1998 between ANSYS and Southern California Bank
10.14* $1,000,000 Promissory Note Change in Terms Agreement dated
May 28, 1998 between ANSYS and Southern California Bank
10.15 + Letter Agreement dated September 24, 1998 by and between
ANSYS and Molecular Innovations, Inc.
10.16 $300,000 Convertible Note dated February 5, 1999 between
ANSYS and Molecular Innovations, Inc.
10.17 + Convertible Note Purchase Agreement dated February 5, 1999
between ANSYS and Molecular Innovations, Inc.
10.18 ANSYS 1999 Employee Stock Purchase Plan
21.1* List of Subsidiaries
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors
23.2* Consent of Brobeck Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1* Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
II-4
<PAGE> 99
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lake
Forest, State of California, on the 23rd day of April, 1999.
ANSYS DIAGNOSTICS, INC.
By: /s/ STEPHEN K. SCHULTHEIS
-----------------------------------
Stephen K. Schultheis,
Chairman of the Board, President
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN K. SCHULTHEIS Chairman of the Board, April 23, 1999
- ------------------------------------------ President and Chief Executive
Stephen K. Schultheis Officer (principal executive
officer)
/s/ SUZANNE M. DAVID Chief Financial Officer April 23, 1999
- ------------------------------------------ (principal financial and
Suzanne M. David accounting officer)
* Director April 23, 1999
- ------------------------------------------
Ronald J. Hall
* Director April 23, 1999
- ------------------------------------------
George D. Holmes
* Director April 23, 1999
- ------------------------------------------
John M. Morris
* Director April 23, 1999
- ------------------------------------------
C. Michael O'Donnell, Ph.D.
* Director April 23, 1999
- ------------------------------------------
William C. Shepherd
</TABLE>
*By: /s/ STEPHEN K. SCHULTHEIS
- --------------------------------
Stephen K. Schultheis,
Attorney-in-fact
II-6
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Certificate of Incorporation of ANSYS to be filed with the
Delaware Secretary of State in May 1999.....................
3.2 Bylaws of ANSYS.............................................
4.1 Specimen certificate representing shares of common stock of
the Company.................................................
5.1* Form of Opinion of Brobeck Phleger & Harrison LLP...........
10.1 Form of Indemnification Agreement...........................
10.2* Stock Option Plan for Employees of ANSYS, together with form
of Stock Option Agreement (and related Notice of Grant of
Option), Stock Purchase Agreement and Stock Issuance
Agreement...................................................
10.3* 1997 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement.......
10.4+* Commercial Agreement dated as of April 1, 1993 by and
between Roche Diagnostic Systems, Inc. and ANSYS............
10.5* Amendment to Commercial Agreement between Roche Diagnostic
Systems, Inc. and ANSYS dated May 1, 1998...................
10.6+* Development and Manufacturing Agreement dated as of
September 1, 1996 by and between Roche Diagnostic Systems,
Inc. and ANSYS..............................................
10.7+* First Amendment to Development and Manufacturing Agreement
between Roche Diagnostic Systems, Inc. and ANSYS dated as of
September 25, 1998..........................................
10.8* Standard Industrial Commercial Single-Tenant Lease -- Net
dated November 1, 1996 between Makena Properties and
ANSYS.......................................................
10.9* Form of International Distributorship Agreement for ANSYS...
10.10* Form of Distributorship Agreement for ANSYS ................
10.11* Registration Rights Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS.............
10.12* Management Subscription Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS.............
10.13* $2,000,000 Promissory Note Change in Terms Agreement dated
June 1, 1998 between ANSYS and Southern California Bank.....
10.14* $1,000,000 Promissory Note Change in Terms Agreement dated
May 28, 1998 between ANSYS and Southern California Bank.....
10.15+ Letter Agreement dated September 24, 1998 by and between
ANSYS and Molecular Innovations, Inc........................
10.16 $300,000 Convertible Note dated February 5, 1999 between
ANSYS and Molecular Innovations, Inc........................
10.17+ Convertible Note Purchase Agreement dated February 5, 1999
between ANSYS and Molecular Innovations, Inc................
10.18 ANSYS 1999 Employee Stock Purchase Plan
21.1* List of Subsidiaries........................................
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors....
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
23.2* Consent of Brobeck Phleger & Harrison LLP (contained in
Exhibit 5.1)................................................
24.1* Power of Attorney...........................................
27.1 Financial Data Schedule.....................................
</TABLE>
- -------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 1.1
2,500,000 Shares
ANSYS DIAGNOSTICS, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1999
VECTOR SECURITIES INTERNATIONAL, INC.
SUTRO & CO. INCORPORATED
As Representatives of
the Several Underwriters
named in Schedule I hereto
c/o VECTOR SECURITIES INTERNATIONAL, INC.
1751 Lake Cook Road
Suite 350
Deerfield, Illinois 60015
Dear Sirs:
ANSYS Diagnostics, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 2,500,000 shares of its
stock, par value $0.0001 per share (the "Initial Securities"), to the several
Underwriters named in Schedule I hereto (the "Underwriters") for whom Vector
Securities International, Inc. ("Vector"), and Sutro & Co. Incorporated are
acting as representatives (the "Representatives"). In addition, solely for the
purpose of covering over-allotments, the Company proposes to grant to the
several Underwriters, upon the terms and conditions set forth in Section 2
hereof, an option to purchase up to an additional 375,000 shares of Common Stock
of the Company (the "Option Securities"). The Initial Securities and the Option
Securities are hereinafter collectively referred to as the "Securities." The
Company's Common Stock, par value $0.0001 per share, including the Securities,
is hereinafter referred to as the "Common Stock." The Company wishes to confirm
as follows its agreements with you and the other Underwriters on whose behalf
you are acting in connection with the several purchases by the Underwriters of
the Securities:
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission
<PAGE> 2
(the "Commission") a registration statement on Form S-1 (No. 333-72665) covering
the registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus, and either (A)
has prepared and filed, prior to the effective date of such registration
statement, an amendment to such registration statement, including a final
prospectus or (B) if the Company has elected to rely upon Rule 430A ("Rule
430A") of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations"), will prepare and file a prospectus, in accordance with
the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act
Regulations, promptly after execution and delivery of this Agreement.
Additionally, if the Company has elected to rely upon Rule 434 ("Rule 434") of
the 1933 Act Regulations, the Company will prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b),
promptly after execution and delivery of this Agreement. The information, if
any, included in such prospectus or in such Term Sheet, that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it becomes effective (a)
pursuant to paragraph (b) of Rule 430A, is referred to herein as the "Rule 430A
Information," or (b) pursuant to paragraph (d) of Rule 434, is referred to
herein as the "Rule 434 Information." Each prospectus used before the time such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information that was used
after effectiveness and prior to the execution and delivery of this Agreement,
is herein called a "preliminary prospectus." Such registration statement,
including the exhibits and schedules thereto, at the time it became effective
and including, if applicable, the Rule 430A Information or the Rule 434
Information, is herein called the "Registration Statement." Any registration
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after such filing
the term Registration Statement shall include the Rule 462(b) Registration
Statement. The final prospectus in the form first furnished to the Underwriters
for use in connection with the offering of the Securities is herein referred to
as the "Prospectus." If Rule 434 is relied upon, the term "Prospectus" shall
refer to the preliminary prospectus last furnished to the Underwriters in
connection with the offering of the Securities, together with the Term Sheet,
and all references to the date of the Prospectus shall mean the date of the Term
Sheet.
2. AGREEMENTS TO SELL AND PURCHASE. Upon the basis of the
representations, warranties and agreements contained herein, and subject to all
the terms and conditions set forth herein, the
2
<PAGE> 3
Company hereby agrees to issue and sell to each Underwriter and each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $_____ per share (the "purchase price per share"), the number of
Initial Securities set forth in Schedule I opposite the name of such Underwriter
under the column "Number of Initial Securities to be Purchased from the Company"
(or such number of Initial Securities increased as set forth in Section 10
hereof).
Upon the basis of the representations, warranties and
agreements contained herein, and subject to all the terms and conditions set
forth herein, the Company hereby grants an option (the "over-allotment option")
to the Underwriters to purchase from the Company, at the purchase price per
share, up to an aggregate of 375,000 Option Securities. Option Securities may be
purchased solely for the purpose of covering over-allotments made in connection
with the offering of the Securities. Such option shall expire at 5:00 P.M.,
Chicago time, on the 30th day after the date of this Agreement (or, if such 30th
day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading). Such
over-allotment option may be exercised at any time or from time to time until
its expiration. Upon any exercise of the over-allotment option, each
Underwriter, severally and not jointly, agrees to purchase from the Company that
proportion of the total number of Option Securities as is equal to the
percentage of Initial Securities that such Underwriter is purchasing from the
Company (or such number of Initial Securities increased as set forth in Section
10 hereof), subject to such adjustments as you may determine to avoid fractional
shares.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by
you that the Underwriters propose to make a public offering of the Securities as
soon after the Registration Statement and this Agreement have become effective
as in your judgment is advisable and initially to offer the Securities upon the
terms set forth in the Prospectus.
4. DELIVERY OF THE SECURITIES AND PAYMENT THEREFOR. Delivery
to the Underwriters of and payment for the Initial Securities shall be made at
the office of Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker
Drive, Suite 2100, Chicago, Illinois 60606, at 9:00 A.M., Chicago time, on the
third (fourth, if the pricing occurs after 4:30 P.M. (Eastern Time) on any given
day) business day after the date hereof (unless postponed in accordance with the
provisions of Section 10 hereof) (the "Closing Date"). The place of closing for
the Initial Securities and the Closing Date may be varied by agreement among you
and the Company.
3
<PAGE> 4
Delivery to the Underwriters of and payment for any Option
Securities to be purchased by the Underwriters shall be made at the
aforementioned office of Skadden, Arps, Slate, Meagher & Flom (Illinois) at such
time on such date (an "Option Closing Date"), which may be the same as the
Closing Date but shall in no event be earlier than the Closing Date nor earlier
than two nor later than ten business days after the giving of the notice
hereinafter referred to, as shall be specified in a written notice from you on
behalf of the Underwriters to the Company of the Underwriters' determination to
purchase a number, specified in such notice, of Option Securities. The place of
closing for any Option Securities and the Option Closing Date for such Option
Securities may be varied by agreement between you and the Company.
Certificates for the Initial Securities and for any Option
Securities to be purchased hereunder shall be registered in such names and in
such denominations as you shall request by written notice (it being understood
that a facsimile transmission shall be deemed written notice) prior to 9:30
A.M., Chicago time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates shall be made
available to you in Chicago, Illinois or New York, New York, as requested by you
in the aforesaid notice, for inspection and packaging not later than 9:30 A.M.,
Chicago time, on the business day next preceding the Closing Date or an Option
Closing Date, as the case may be. The certificates evidencing the Initial
Securities and any Option Securities to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case may
be, against payment of the purchase price therefor by certified or official bank
check or checks payable in New York Clearing House (next day) funds to the order
of the Company. It is understood that each Underwriter has authorized you, for
its account, to accept delivery of, acknowledge receipt of, and make payment of
the purchase price for, the Initial Securities and the Option Securities, if
any, which it has agreed to purchase. Vector, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose check has not been
received by the Closing Date or the Option Closing Date, as the case may be, but
such payment shall not relieve such Underwriter from its obligations hereunder.
5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters as follows:
4
<PAGE> 5
a. The Company will notify the Underwriters
immediately, and confirm the notice in writing, (i) of the effectiveness of the
Registration Statement and any amendment thereto, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the suspension of qualification of the Securities for offering or sale in any
jurisdiction or the initiation of any proceedings for such purpose and (v)
during the period when the Prospectus is required to be delivered under the 1933
Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), of any
change, or any event or occurrence which could result in such a change, in the
Company's condition, financial or otherwise, or the earnings, business affairs
or business prospects of the Company or the happening of any event, including
the filing of any information, documents or reports pursuant to the 1934 Act,
that makes any statement of a material fact made in the Registration Statement
or the Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to state a material fact required by the 1933 Act or the
1933 Act Regulations to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus to comply with the 1933 Act, the 1933 Act Regulations or any
other law. The Company shall use its best efforts to prevent the issuance of any
stop order or order suspending the qualification or exemption of the Securities
under any state securities or Blue Sky laws, and, if at any time the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption of the Securities
under any state securities or Blue Sky laws, the Company shall use every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
b. The Company will give the Underwriters notice of
its intention to prepare or file any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement, any Term Sheet or any amendment or supplement to the Prospectus
(including any revised prospectus or Term
5
<PAGE> 6
Sheet and preliminary prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus or Term
Sheet and preliminary prospectus is required to be filed pursuant to Rule
424(b)), whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish the Underwriters with copies of any Rule 462(b) Registration Statement,
Term Sheet, amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such Rule
462(b) Registration Statement, Term Sheet, amendment or supplement or use any
such prospectus to which the Underwriters or counsel for the Underwriters shall
object.
c. The Company has furnished or will deliver to the
Underwriters and their counsel, without charge, as many signed and conformed
copies of the Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by reference
therein) as the Underwriters may reasonably request.
d. The Company will furnish to each Underwriter,
without charge, from time to time during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, such number of
copies of the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request for the purposes contemplated by the 1933 Act, the 1934 Act,
the 1933 Act Regulations or the rules and regulations of the Commission under
the 1934 Act (the "1934 Act Regulations").
e. The Company will comply with the 1933 Act and the
1933 Act Regulations so as to permit the completion of the distribution of the
Securities as contemplated in this Agreement and in the Prospectus. If at any
time when a prospectus is required by the 1933 Act, the 1934 Act, the 1933 Act
Regulations or the 1934 Act Regulations to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 5(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements and the
Company will
6
<PAGE> 7
furnish to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.
f. During the period of five years after the date of
this Agreement, the Company will furnish to you (i) as soon as available, a copy
of each report of the Company mailed to stockholders or filed with the
Commission or the Nasdaq National Market (ANNM@), and (ii) from time to time
such other information concerning the Company as you may reasonably request.
g. The Company will use its best efforts, in
cooperation with counsel to the Underwriters, to qualify the Securities for
offering and sale under the applicable securities or Blue Sky laws of such
states and other jurisdictions of the United States as the Underwriters may
designate and to maintain such qualifications in effect for a period of not less
than one year from the later of the effective date of the Registration Statement
and any Rule 462(b) Registration Statement; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation in any jurisdiction
in which it is not so qualified. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and reports as may
be required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the later of the effective
date of the Registration Statement and any Rule 462(b) Registration Statement.
h. The Company will make generally available to its
security holders as soon as practicable, but not later than 45 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the 1933 Act Regulations) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
i. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
j. If at the time that the Registration Statement
becomes effective any Rule 430A Information or Rule 434 Information shall have
been omitted therefrom, then immediately following the execution of this
Agreement the Company will prepare and file or transmit for filing with the
Commission in accordance with Rule 430A or Rule 434 and Rule 424(b) copies of a
Prospectus or Term Sheet containing such Rule 430A Information and Rule 434
Information, respectively, or, if required by Rule 430A, a post-
7
<PAGE> 8
effective amendment to the Registration Statement (including an amended
Prospectus) containing such Rule 430A Information.
k. If the Company elects to rely upon Rule 462(b),
the Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees in
accordance with Rule 111 of the 1933 Act Regulations by the earlier of (i) 10:00
P.M. Eastern Time on the date hereof and (ii) the time confirmations are sent or
given, as specified by Rule 462(b)(2).
l. The Company, during the period when the Prospectus
is required to be delivered under the 1933 Act or the 1934 Act, will file all
documents required to be filed with the Commission pursuant to Section 13, 14 or
15 of the 1934 Act within the time periods required by the 1934 Act and the 1934
Act Regulations.
m. During a period of 180 days from the date of the
Prospectus, the Company will not, without the prior written consent of Vector,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Securities to be
sold hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of security outstanding on
the date hereof and referred to in the Prospectus, (C) any shares of Common
Stock issued or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus or (D) any
shares of Common Stock issued pursuant to any non-employee director stock plan.
n. The Company will furnish to you, concurrently with
the execution of this Agreement, "lock-up" letters, in form and substance
satisfactory to you, executed by (i) each of the officers and directors of the
Company and (ii) each of the Stockholders listed in Schedule II hereto.
8
<PAGE> 9
o. The Company will supply the Underwriters with
copies of all correspondence to and from, and all documents issued to and by,
the Commission in connection with the registration of the Securities under the
1933 Act.
p. Prior to the Closing Date, the Company shall
furnish to the Underwriters, as soon as they have been prepared, copies of any
unaudited interim consolidated financial statements of the Company and Ansys
International, Inc., a Virgin Islands foreign sales corporation (the
"Subsidiary"), for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the Prospectus.
q. Prior to the Closing Date, the Company will issue
no press release or other communications directly or indirectly and hold no
press conference with respect to the Company or the Subsidiary, the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of any of them, or the offering of the Securities, without the prior written
consent of Vector unless in the judgment of the Company and its counsel, and
after notification to the Representatives, such press release or communication
is required by law.
r. The Company has not taken, nor will it take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Securities.
s. The Company will use its best efforts to maintain
the inclusion of such Common Stock on the NNM (or on a national securities
exchange) for a period of five years after the effective date of the
Registration Statement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
a. When the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto becomes
effective, at the date of the Prospectus, if different, and at the Closing Date
and the Option Closing Date, as the case may be, the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements thereto
complied or will comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The
9
<PAGE> 10
Prospectus and any supplements or amendments thereto will not at the date of the
Prospectus, at the date of any such supplements or amendments, or at the Closing
Date or the Option Closing Date, if any, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially different,"
as such term is used in Rule 434, from the Prospectus included in the
Registration Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus relating to any Underwriter made in
reliance upon and in conformity with information furnished to the Company in
writing by any Underwriter through Vector expressly for use in the Registration
Statement or Prospectus. The Company has not distributed any offering materials
in connection with the offering or sale of the Securities other than the
Registration Statement, the preliminary prospectus, the Prospectus, the Term
Sheet, if applicable, or any other materials, if any, permitted by the 1933 Act
or the 1933 Act Regulations.
b. Each preliminary prospectus and the prospectus
filed as part of the Registration Statement as originally filed or as part of
any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act Regulations.
c. McGladrey & Pullen, LLP, the accountants who
certified the financial statements and supporting schedules included in the
Registration Statement, are independent public accountants as required by the
1933 Act and the 1933 Act Regulations.
d. The audited and unaudited financial statements
included or incorporated by reference in the Registration Statement and the
Prospectus present fairly the consolidated financial position of the Company and
its Subsidiary as of the dates indicated and the results of their operations for
the periods specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and the supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. The financial information and statistical data
set forth in the Prospectus are prepared on an accounting basis consistent with
such financial statements.
10
<PAGE> 11
e. Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one enterprise,
whether or not arising in the ordinary course of business, (ii) there have been
no transactions entered into by the Company or the Subsidiary, other than those
in the ordinary course of business, which are material with respect to the
Company, and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock. The
Company has no material contingent obligations which are not disclosed in the
Registration Statement.
f. The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement; and the Company is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not, singly or in the aggregate,
have a material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and the
Subsidiary considered as one enterprise.
g. The Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qualify would not have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and the
Subsidiary considered as one enterprise; all of the issued and outstanding
capital stock of the Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, free and clear of any
security interest, mortgage, pledge, lien, charge, encumbrance, claim or equity.
There are no outstanding
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subscriptions, options, warrants, commitments, convertible or exchangeable
securities or other rights granted by the Company or the Subsidiary to acquire
any shares of capital stock of or ownership interests in the Subsidiary and
there are no commitments, plans or arrangements to do so. Except with respect to
the Subsidiary and Molecular Innovations Inc., a Delaware corporation, the
Company does not own, directly or indirectly, any shares of stock or any other
equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other entity.
h. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under "Capitalization"
(except for subsequent issuances, if any, pursuant to this Agreement or pursuant
to reservations, agreements, employee or director benefit plans or the exercise
of convertible securities referred to in the Prospectus); the shares of issued
and outstanding capital stock of the Company have been, or will be prior to the
Closing, duly authorized and validly issued and are fully paid and
non-assessable and have not been issued in violation of or are not otherwise
subject to, any preemptive or other similar rights; the Securities have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be validly
issued and fully paid and non-assessable; the certificates evidencing the
Securities are in due and proper form under Delaware law; the authorized capital
stock of the Company, including the Securities, conforms to all statements
relating thereto contained in the Prospectus; and the issuance of the Securities
is not subject to preemptive or other similar rights. There are no outstanding
subscriptions, options, warrants, convertible or exchangeable securities or
other rights granted to or by the Company to purchase shares of Common Stock or
other securities of the Company and there are no commitments, plans or
arrangements to issue any shares of Common Stock or any security convertible
into or exchangeable for Common Stock, in each case other than as described in
the Prospectus.
i. Except as disclosed in the Registration Statement
and except as would not, singly or in the aggregate, reasonably be expected to
have a material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and the
Subsidiary considered as one enterprise, (A) the Company and the Subsidiary are
in compliance with all applicable Environmental Laws (as defined below), (B) the
Company and the Subsidiary have all permits, authorizations and approvals
required under any applicable
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Environmental Laws and are each in compliance with the requirements of such
permits authorizations and approvals, (C) there are no pending or, to the best
knowledge of the Company, threatened Environmental Claims against the Company or
the Subsidiary and (D) to the best knowledge of the Company, under applicable
law, there are no circumstances with respect to any property or operations of
the Company or the Subsidiary that are reasonably likely to form the basis of an
Environmental Claim (as defined below) against the Company or the Subsidiary.
For purposes of this Agreement, the following terms shall have
the following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) Federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgement, relating to the environment,
health, safety or any chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
j. Neither the Company nor the Subsidiary is in
violation of its charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, deed, trust,
note, lease, sublease, voting agreement, voting trust, or other instrument or
agreement to which the Company or the Subsidiary is a party or by which either
of them may be bound, or to which any of the property or assets of the Company
or the Subsidiary is subject. To the best knowledge of the Company, no other
party under any material contract or other agreement to which the Company or the
Subsidiary is a party is in material default in any respect thereunder. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein and compliance by the Company with its
obligations hereunder will not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the Subsidiary
pursuant to, any contract, indenture, mortgage, loan agreement, deed, trust,
note, lease, sublease, voting agreement, voting trust or other instrument or
agreement to which the Company or the Subsidiary is a party or by which either
of them may be bound, or to which any of the property or assets of the Company
or the Subsidiary is subject, nor will
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<PAGE> 14
such action result in any violation of the provisions of the charter or bylaws
of the Company or the Subsidiary or any applicable statute, law, rule,
regulation, ordinance, code, judgment, ruling, decision or order of any court or
other governmental agency or body applicable to the business or properties of
the Company or the Subsidiary.
k. No labor dispute with the employees of the Company
or the Subsidiary exists or, to the best knowledge of the Company, is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or contractors
which might, singly or in the aggregate, be expected to result in any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and the Subsidiary
considered as one enterprise.
l. There is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Company, threatened, against or affecting the
Company or the Subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which, singly or in the
aggregate, might result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one enterprise, or
which, singly or in the aggregate, might materially and adversely affect the
properties or assets thereof or which might materially and adversely affect the
consummation of this Agreement; all pending legal or governmental proceedings to
which the Company or the Subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material; and there are no
contracts or documents of the Company or the Subsidiary which are required to be
filed as exhibits to the Registration Statement by the 1933 Act or by the 1933
Act Regulations which have not been so filed.
m. The Company and the Subsidiary own or are licensed
to use all patents, patent applications, inventions, trademarks, trade names,
applications for registration of trademarks, service marks, service mark
applications, copyrights, know-how, manufacturing processes, formulae, trade
secrets, licenses and rights in any thereof and any other intangible property
and assets (herein called the "Proprietary Rights") which are material to the
businesses of the Company and the Subsidiary as
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<PAGE> 15
now conducted and as proposed to be conducted, in each case as described in the
Prospectus. The description of the Proprietary Rights in the Prospectus is
correct in all material respects and fairly and correctly describes the
Company=s and the Subsidiary=s rights with respect thereto. Except as described
in the Prospectus, the Company does not have any knowledge of, and the Company
has not given or received any notice of, any pending conflicts with or
infringement of the rights of others with respect to any Proprietary Rights or
with respect to any license of Proprietary Rights. No action, suit, arbitration,
or legal, administrative or other proceeding, or investigation is pending, or,
to the best knowledge of the Company, threatened, which involves any Proprietary
Rights. Neither the Company nor the Subsidiary is subject to any judgment,
order, writ, injunction or decree of any court or any Federal, state, local,
foreign or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any arbitrator, or has entered into or
is a party to any contract, which restricts or impairs the use of any such
Proprietary Rights in a manner which would have a material adverse effect on the
use of any of the Proprietary Rights. To the best knowledge of the Company, no
Proprietary Rights used by the Company or the Subsidiary, and no services or
products sold by the Company or the Subsidiary, conflict with or infringe upon
any proprietary rights available to any third party. Neither the Company nor the
Subsidiary has received written notice of any pending conflict with or
infringement upon such third-party proprietary rights. Neither the Company nor
the Subsidiary has entered into any consent, indemnification, forbearance to sue
or settlement agreement with respect to Proprietary Rights other than in the
ordinary course of business. No claims have been asserted by any person with
respect to the validity of the Company's or the Subsidiary=s ownership or right
to use the Proprietary Rights and, to the best knowledge of the Company, there
is no reasonable basis for any such claim to be successful. The Proprietary
Rights are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or cancelled or is the subject of cancellation
or other adversarial proceedings, and all applications therefore are pending and
are in good standing. The Company and the Subsidiary have complied in all
material respects with their respective contractual obligations relating to the
protection of the Proprietary Rights used pursuant to licenses. To the best
knowledge of the Company, no person is infringing on or violating the
Proprietary Rights owned or used by the Company or the Subsidiary.
n. No registration, authorization, approval,
qualification, consent or order of any court or governmental authority or agency
is required in connection with the offering,
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<PAGE> 16
issuance or sale of the Securities hereunder, except such as may be required
under the 1933 Act or the 1933 Act Regulations, state securities or Blue Sky
laws, or the National Association of Securities Dealers, Inc. ("NASD").
o. The Company and the Subsidiary each possess and
are operating in compliance with all licenses, certificates, consents,
authorities, approvals and permits (collectively, "permits") from all state,
Federal, foreign and other regulatory agencies or bodies necessary to conduct
the businesses now operated by them, and neither the Company nor the Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such permit or any circumstance which would lead it to
believe that such proceedings are reasonably likely which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and the
Subsidiary considered as one enterprise.
p. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
Federal or state securities laws or the public policy underlying such laws.
q. Except as described in the Prospectus, there are
no persons with registration or other similar rights to have any securities of
the Company registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
r. No order preventing or suspending the use of any
preliminary prospectus has been issued and no proceedings for that purpose are
pending, threatened, or, to the best knowledge of the Company, contemplated by
the Commission; and to the best knowledge of the Company, no order suspending
the offering of the Securities in any jurisdiction designated by the
Underwriters pursuant to Section 5(g) of this Agreement has been issued and, to
the best knowledge of the Company, no proceedings for that purpose have been
instituted or threatened or are contemplated.
s. The Company and the Subsidiary each have good and
marketable title to all properties and assets owned by them, free and clear of
all material security interests, mortgages, pledges, liens, charges,
encumbrances, claims and equities of record. The properties and assets of the
Company and the
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<PAGE> 17
Subsidiary are, in the aggregate, in good repair (reasonable wear and tear
excepted), and suitable for their respective uses. Any real properties held
under lease by the Company or the Subsidiary are held under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the conduct of the business of the Company and the Subsidiary
considered as one enterprise.
t. The Company and the Subsidiary maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
u. The Company and the Subsidiary have conducted and
are conducting their respective businesses in compliance with all applicable
Federal, state, local and foreign statutes, laws, rules, regulations,
ordinances, codes, decisions, decrees, directives and orders, except where the
failure to do so would not, singly or in the aggregate, have a material adverse
effect on the condition, financial or otherwise, or on the earnings, business
affairs or business prospects of the Company and the Subsidiary considered as
one enterprise.
v. To the best knowledge of the Company, neither the
Company nor the Subsidiary, nor any employee or agent of the Company or the
Subsidiary, has made any payment of funds of the Company or the Subsidiary or
received or retained any funds in violation of any statute, law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
w. The Company is not now, and after sale of the
Securities to be sold by it hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
x. All offers and sales of capital stock of the
Company prior to the date hereof were at all relevant times duly
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<PAGE> 18
registered or exempt from the registration requirements of the 1933 Act and were
duly registered or subject to an available exemption from the registration
requirements of the applicable state securities or Blue Sky laws.
y. The Securities have been duly authorized for
quotation on NNM. The Company has taken no action designed to, or likely to have
the effect of delisting the Common Stock from NNM, nor has the Company received
any notification that the NNM is contemplating terminating such listing.
z. The Company has not taken, and at the Closing Date
and at any later Option Closing Date, the Company will not have taken, directly
or indirectly, any action which has constituted, or might reasonably be expected
to constitute, the stabilization or manipulation of the price of sale or resale
of the Securities.
aa. The Company and the Subsidiary maintain insurance
of the types and in amounts adequate for their businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering clinical trial liability,
product liability and real and personal property owned or leased against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. The Company
believes that it will be able to renew its existing insurance coverage as and
when such coverage expires. The Company has not been refused any insurance
coverage sought or applied for by the Company.
bb. The Company and the Subsidiary have filed all
material tax returns required to be filed, which returns are true and correct in
all material respects, and neither the Company nor the Subsidiary is in default
in the payment of any taxes, including penalties and interest, assessments, fees
and other charges, shown thereon due or otherwise assessed, other than those
being contested in good faith and for which adequate reserves have been provided
or those currently payable without interest which were payable pursuant to said
returns or any assessments with respect thereto.
cc. Except as described in the Prospectus, to the
best knowledge of the Company, there are no rulemaking or similar proceedings
before the United States Food and Drug Administration or comparable Federal,
state, local or foreign governmental bodies which involve or affect the Company
or the Subsidiary, which, if the subject of an action unfavorable to the Company
or the Subsidiary, could involve a prospective material adverse change in
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<PAGE> 19
or effect on the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and the Subsidiary considered as
one enterprise.
dd. The Commercial Agreement between the Company and
Roche Diagnostic Systems Inc. (ARoche@), dated as of April 13, 1993, as amended
May 1, 1998, and the Development and Manufacturing Agreement between the Company
and Roche, dated September 1, 1996 (collectively the "Partner Agreements"), have
each been duly authorized, executed and delivered by the Company and constitute
valid and binding agreements of the Company, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. No default has
occurred under any of the Partner Agreements and no event has occurred which,
with the passage of time or otherwise, would constitute a default under any of
the Partner Agreements. The Company has not received any communication (whether
written or oral) relating to the termination or threatened termination or
modification or threatened modification of any material, consulting, licensing,
marketing, research and development, cooperative or any similar agreement,
including, without limitation, the Partner Agreements identified under the
section of the Prospectus entitled "BusinessCAgreements with Roche." Each such
Partner Agreement is in effect substantially as described in such section of the
Prospectus.
ee. To the best knowledge of the Company, if any
full-time employee (past or present)has entered into any non-competition,
non-disclosure, confidentiality or other similar agreement with any party other
than the Company or the Subsidiary, such employee is neither in violation
thereof nor is expected to be in violation thereof as a result of the business
conducted or expected to be conducted by the Company or the Subsidiary as
described in the Prospectus or such person's performance of his obligations to
the Company or the Subsidiary; and neither the Company nor the Subsidiary has
received written notice that any consultant or scientific advisor (past or
present)of the Company or the Subsidiary is in violation of any non-competition,
non-disclosure, confidentiality or similar agreement.
7. INDEMNIFICATION AND CONTRIBUTION.
a. The Company agrees to indemnify and hold harmless
(i) each Underwriter, (ii) each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act (any of the persons referred to
in this clause (ii) being
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hereinafter referred to as a "controlling person") and (iii) the respective
directors, officers, partners and employees of any of the Underwriters or any
controlling person (any person referred to in clause (i), (ii) or (iii) may
hereinafter be referred to as an "Indemnified Person") to the fullest extent
lawful, from and against any and all losses, claims, damages, liabilities and
expenses whatsoever (including, without limitation, all reasonable costs of
pursuing, investigating and defending any claim, suit or action or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person), directly or indirectly, caused by, related to, based upon
or arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereto, including the Rule 430A Information and Rule 434 Information,
if applicable, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading or caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any preliminary prospectus shall not inure to the benefit of any Underwriter
(or related Indemnified Person) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Securities by such Underwriter
to any person if a copy of the Prospectus shall not have been delivered or sent
to such person within the time required by the 1933 Act or the 1933 Act
Regulations, and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in such preliminary prospectus was
corrected in the Prospectus (or any amendment or supplement thereto), provided
that the Company has delivered the Prospectus to the several Underwriters in
requisite quantity on a timely basis to permit such delivery or sending.
b. If any action, suit or proceeding shall be brought
against any Indemnified Person in respect of which indemnity
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may be sought against the Company, such Indemnified Person shall promptly notify
the parties against whom indemnification is being sought (the "indemnifying
parties"), and such indemnifying parties shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses. Such
Indemnified Person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the indemnifying parties have agreed in writing to pay such
fees and expenses, (ii) the indemnifying parties have failed to assume the
defense and employ counsel or (iii) the named parties to any such action, suit,
investigation or proceeding (including any impleaded parties) include both such
Indemnified Person and the indemnifying parties and representation of such
Indemnified Person and any indemnifying party by the same counsel would, in the
reasonable judgment of the Indemnified Person, be inappropriate due to actual or
potential differing interests between them (in which case the indemnifying party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Indemnified Person). It is understood, however,
that the indemnifying parties shall, in connection with any one such action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all such Indemnified Persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Vector, and that all such fees and expenses shall be reimbursed as
they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their written
consent, which consent shall not be unreasonably withheld, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless any Indemnified Person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
c. Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its officers
who sign the Registration Statement, any person who controls the Company within
the meaning of Section 15 of the 1933 Act, to the same extent as the foregoing
indemnity from the Company to each Indemnified Person, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through Vector expressly for use in the
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Registration Statement, the Prospectus or any preliminary prospectus, or any
amendment or supplement thereto. If any action, suit, investigation or
proceeding shall be brought against the Company, any of its directors, any such
officer or any such controlling person based on the Registration Statement, the
Prospectus or any preliminary prospectus, or any amendment or supplement
thereto, and in respect of which indemnity may be sought against any Underwriter
pursuant to this paragraph (c), such Underwriter shall have the rights and
duties given to the Company by paragraph (b) above, and the Company, its
directors, any such officer and any such controlling person shall have the
rights and duties given to the Indemnified Persons by paragraph (a) above.
d. If the indemnification provided for in this
Section 7 is unavailable to, or insufficient to hold harmless, an indemnified
party under paragraphs (a) or (c) hereof in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law or judicial determination, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters on
the other hand, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus or, if Rule 434 is used, the corresponding location on the Term
Sheet. The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The indemnity and contribution
obligations of the Company set forth herein shall be in addition to any
liability or obligation the Company may otherwise have to any Indemnified
Person.
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e. The Company and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 7, no Underwriter (or any of its related Indemnified Persons) shall be
required to contribute (whether pursuant to subsection (a) or (c) or otherwise)
any amount in excess of the underwriting discount applicable to the Securities
underwritten by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective numbers of Securities set
forth opposite their names in Schedule I hereto (or such numbers of Securities
increased as set forth in Section 10 hereof) and not joint.
f. No indemnifying party shall, without the prior
written consent of the Indemnified Person, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such action, suit or proceeding.
g. Any losses, claims, damages, liabilities or
expenses for which an indemnified party is entitled to indemnification or
contribution under this Section 7 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Indemnified Person, the Company,
its directors or officers or any person controlling the Company, (ii) acceptance
of any Securities and payment therefor hereunder and (iii) any termination of
this Agreement.
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8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Initial Securities hereunder are
subject to the following conditions:
a. The Registration Statement, including any Rule
462(b) Registration Statement, shall have become effective on the date hereof;
no stop order suspending the effectiveness of the Registration Statement shall
have been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission. If the Company has elected to rely upon Rule 430A,
Rule 430A Information previously omitted from the effective Registration
Statement pursuant to Rule 430A shall have been transmitted to the Commission
for filing pursuant to Rule 424(b) within the prescribed time period and the
Company shall have provided evidence satisfactory to the Underwriters of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A. If the Company has elected to rely upon Rule 434, a
Term Sheet shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) within the prescribed time period.
b. The Underwriters shall have received:
(i) The favorable opinion, dated as of the
Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
A. The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware. To the best of their knowledge,
the Company is not in violation of its charter or bylaws.
B. The Company has corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the
Prospectus and to enter into and perform its obligations under
this Agreement.
C. To the best of their knowledge and information,
the Company is duly qualified as a foreign corporation to
transact business and is in
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<PAGE> 25
good standing in each jurisdiction in which such qualification
is required.
D. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any,
pursuant to reservations, agreements, employee benefit plans
or the exercise of convertible securities referred to in the
Prospectus), and the shares of issued and outstanding capital
stock of the Company have been, or will be prior to the
Closing, duly authorized and validly issued and are fully paid
and non-assessable and, to their knowledge and information,
have not been issued in violation of or are not otherwise
subject to any preemptive rights or other similar rights.
E. The Securities have been duly authorized for
issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and
fully paid and non-assessable; and the issuance of the
Securities is not subject to preemptive or other similar
rights.
F. The Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus
and, to the best of their knowledge and information, is duly
qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such
qualification is required; all of the issued and outstanding
capital stock of the Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and, to the
best of their knowledge and information, is owned by the
Company, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity, except as
described in the Prospectus. To the best of their knowledge
and information, except as described in the Prospectus, there
are no outstanding subscriptions, options, warrants,
commitments, convertible or exchangeable securities or other
rights granted by the Company or
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<PAGE> 26
the Subsidiary to acquire any shares of capital stock of or
ownership interests in the Subsidiary and there are no
commitments, plans or arrangements to do so.
G. To the best of their knowledge and information,
except as described in the Prospectus, there are no
outstanding subscriptions, options, warrants, convertible or
exchangeable securities or other rights granted to or by the
Company to purchase shares of Common Stock or other securities
of the Company and there are no commitments, plans or
arrangements to issue any shares of Common Stock or any
security convertible or exchangeable for Common Stock.
H. This Agreement has been duly authorized, executed
and delivered by the Company.
I. At the time the Registration Statement became
effective and at the Closing Date, the Registration Statement
(other than the financial statements and supporting schedules
included therein, as to which no opinion need be rendered)
complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
J. The form of certificate used to evidence each of
the Securities is in due and proper form and complies with all
applicable statutory requirements.
K. To the best of their knowledge and information,
there are no legal or governmental proceedings pending or
threatened which are required to be disclosed in the
Registration Statement other than those disclosed therein, and
all pending legal or governmental proceedings to which the
Company or the Subsidiary is a party or to which any of their
property is subject which are not described in the
Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate,
not material.
L. The information in the Prospectus under "Certain
Transactions," "Business-Government Regulation," "Description
of Capital Stock," Business-Agreements with Roche,"
"Management-Stock
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<PAGE> 27
Option Plans," "Shares Eligible for Future Sale" and Item 15
of Part II of the Registration Statement to the extent that it
constitutes matters of law, summaries of legal matters,
documents or proceedings, or legal conclusions, has been
reviewed by them and is correct in all material respects and
fairly and correctly presents the information called for with
respect thereto.
M. To the best of their knowledge and information,
there are no contracts, indentures, mortgages, loan
agreements, deeds, trusts, notes, leases, subleases, voting
trusts, voting agreements or other instruments or agreements
required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed as exhibits thereto,
the descriptions thereof or references thereto are correct;
and to the best of their knowledge and information, no default
exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, loan agreement, deed,
trust, note, lease, sublease, voting trust, voting agreement
or other instrument or agreement to which the Company or the
Subsidiary is a party or by which either of them may be bound,
or to which any of the property or assets of the Company or
the Subsidiary is subject.
N. No registration, authorization, approval,
qualification, consent or order of any court or governmental
authority or agency is required in connection with the
offering, issuance or sale of the Securities to the
Underwriters, except such as may be required under the 1933
Act or the 1933 Act Regulations or state securities or Blue
Sky laws or such as may be required by the NASD; and the
execution, delivery and performance of the Underwriting
Agreement, and the consummation of the transactions
contemplated therein and the compliance by the Company with
its obligations thereunder will not conflict with or
constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or the Subsidiary
pursuant to, any contract, indenture, mortgage, loan
agreement, note, deed, trust, lease,
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<PAGE> 28
sublease, voting trust, voting agreement or other instrument
or agreement to which the Company or the Subsidiary is a party
or by which either of them may be bound, or to which any of
the property or assets of the Company or the Subsidiary is
subject, nor will such action result in any violation of the
provisions of the charter or bylaws of the Company or the
Subsidiary, or any applicable statute, law, rule, regulation,
ordinance, code, judgment, ruling, decision or order of any
court or governmental agency or body applicable to the
business or prospects of the Company.
O. Except as described in the Prospectus, to the best
of their knowledge and information, there are no persons with
registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
P. The Company is not an "investment company" or a
company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
Q. All sales of the Company's capital stock during
the three years immediately prior to the date hereof were at
all relevant times duly registered or exempt from the
registration requirements of the 1933 Act.
R. To the best of their knowledge and information,
the Company and the Subsidiary are in compliance with, and
conduct their respective businesses in conformity with, all
applicable laws and regulations relating to the operation of
their businesses as described in the Registration Statement,
except to the extent that any failure so to comply or conform
would not have a material adverse effect upon the business or
condition, financial or otherwise, of the Company and the
Subsidiary considered as one enterprise.
S. The Registration Statement has become effective
under the 1933 Act; any required filing of the Prospectus, and
any supplements thereto or the Term Sheet, pursuant to Rule
424(b) and if applicable, Rule 434, has been made in the
manner
28
<PAGE> 29
and within the time period required; and to their best
knowledge and information, no stop order suspending the
effectiveness of the Registration Statement or any part
thereof has been issued and no proceedings therefor have been
instituted or are pending or contemplated under the 1933 Act.
T. Each of the Partner Agreements has been duly
authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally and general principles of equity. To the best of
their knowledge, no default has occurred under such Partner
Agreements and no event has occurred which, with the passage
of time or otherwise, would constitute a default under such
agreements.
(ii) The favorable opinion, dated as of the
Closing Date, of ________________________, patent counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
A. The information in the Prospectus under "Risk
FactorsCWe May Not Be Able To Adequately Protect Or Enforce
Our Intellectual Property Rights" and "BusinessCIntellectual
Property" to the extent that it constitutes matters of patent
law, summaries of legal matters relating to patents, patent
documents, patent proceedings, or legal conclusions relating
to patents, has been reviewed by them and is correct in all
material respects and fairly and correctly presents the
information called for with respect thereto.
B. To the best of their knowledge and information,
there are no pending or threatened legal or governmental
proceedings, nor allegations on the part of any person of
infringement, relating to patent rights, trade secrets,
trademarks, service marks, copyrights or other proprietary
information or know-how of the Company and, to the best of
their knowledge, no such proceedings are threatened or
contemplated.
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<PAGE> 30
C. To the best of their knowledge and information,
the Company is not infringing or otherwise violating any
patents, trade secrets, trademarks, service marks, copyrights
or other proprietary information or know-how of any persons,
and no person is infringing or otherwise violating any of the
Company's patents, trade secrets, trademarks, service marks,
copyrights or other proprietary information or know-how of the
Company in a way which could materially affect the use thereof
by the Company.
D. To the best of their knowledge and information,
the Company owns or possesses sufficient licenses or other
rights to use all patents, trade secrets, trademarks, service
marks or other proprietary information or know-how necessary
to conduct the business now being or proposed to be conducted
by the Company as described in the Prospectus.
E. The Company is listed in the records of the United
States Patent and Trademark Office ("PTO") as the sole
assignee of record of each of the patents listed on Schedule
III hereto (herein called the "Patents") and each of the
applications listed on Schedule IV hereto (herein called the
"Applications"). To the best of their knowledge and
information, there are no asserted or unasserted claims of any
persons relating to the scope or ownership of the Patents or
the Applications, there are no liens which have been filed
against any of the Patents or the Applications, there are no
material defects of form in the preparation or filing of the
Applications, the Applications are being diligently
prosecuted, and none of the Applications has been finally
rejected or abandoned.
F. The Company is listed in the records of the
appropriate foreign patent offices as the sole assignee of
record of each of the foreign patents listed on Schedule V
hereto (herein called the "Foreign Patents") and each of the
foreign applications listed on Schedule VI hereto (herein
called the "Foreign Applications"). To the best of their
knowledge and information, there are no asserted or unasserted
claims of any persons
30
<PAGE> 31
relating to the scope or ownership of the Foreign Patents or
the Foreign Applications, there are no liens which have been
filed against any of the Foreign Patents or the Foreign
Applications, there are no material defects of form in the
preparation or filing of the Foreign Applications, the Foreign
Applications are being diligently prosecuted, and none of the
Foreign Applications has been finally rejected or abandoned.
G. Nothing has come to their attention that leads
them to believe that the Applications and Foreign Applications
will not eventuate in issued patents, or that any patents
issued in respect of any such Applications or Foreign
Applications will not be valid or will not afford the Company
reasonable patent protection relative to the subject matter
thereof.
H. The Company is the non-exclusive licensee of the
United States and foreign patents and patent applications
listed on Schedule VII and is the exclusive licensee of the
United States and foreign patents and patent applications
listed on Schedule VIII. To the best of their knowledge and
information, all such licenses are duly executed, validly
binding and enforceable in accordance with their terms and, to
the best of their knowledge and information, the Company is
not in default (declared or undeclared) of any material
provision of any such licenses.
I. To the best of their knowledge and information,
all pertinent prior art references known to the Company or its
counsel during the prosecution of the Patents and the
Applications were disclosed to the PTO and, to the best of
their knowledge and information, neither such counsel nor the
Company made any misrepresentation to, or concealed any
material fact concealed from, the PTO during such prosecution.
J. Nothing has come to their attention that leads
them to believe that, with respect to licenses, patents, trade
secrets, copyrights or other proprietary information or
know-how owned or used by the Company which are the subject of
the foregoing opinions, the Registration Statement, at
31
<PAGE> 32
the time it became effective, contained an untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date
(unless the term "Prospectus" refers to a prospectus which has
been provided to the Underwriters by the Company for use in
connection with the offering of the Securities which differs
from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the
time it is first provided to the Underwriters for such use) or
at the Closing Date or the Option Closing Date, as the case
may be, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iii) The favorable opinion, dated as of the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom (Illinois),
counsel for the Underwriters with respect to the issuance and sale of
the Securities, the Registration Statement and the Prospectus and such
other related matters as the Underwriters shall reasonably request.
(iv) In giving their opinions required by
subsections (b)(i) and (b)(iii), respectively, of this Section 8,
Brobeck, Phleger & Harrison, LLP and Skadden, Arps, Slate, Meagher &
Flom (Illinois) shall each additionally state that nothing has come to
their attention that leads them to believe that the Registration
Statement (except for financial statements and schedules and other
financial information included therein, as to which counsel need make
no statement), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (except for financial
statements and schedules and other financial information included
therein, as to which counsel need make no statement), as of its date
(unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with
the offering of the Securities which differs from the Prospectus on
file at the Commission at the time the Registration Statement
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<PAGE> 33
becomes effective, in which case at the time it is first provided to
the Underwriters for such use) or at the Closing Date or the Option
Closing Date, as the case may be, included or includes an untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
c. (i) There shall not have been, since the date
hereof or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and the Subsidiary considered as one
enterprise, whether or not arising in the ordinary course of business, (ii) the
representations and warranties of the Company in Section 6 hereof shall be true
and correct with the same force and effect as though expressly made at and as of
the Closing Date, except to the extent that any such representation or warranty
relates to a specific date, (iii) the Company shall have complied in all
material respects with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date, (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission and (v) the Representatives shall have received a certificate, dated
the Closing Date and signed by the President or any Vice President and the chief
financial or accounting officer of the Company to the effect set forth in
clauses (i), (ii), (iii) and (iv) above.
d. At the time of the execution of this Agreement,
the Underwriters shall have received from McGladrey & Pullen, LLP a letter dated
such date, in form and substance satisfactory to the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
e. The Underwriters shall have received from
McGladrey & Pullen, LLP, dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (d)
of this Section, except that the specified date referred to shall be a date not
more than three business days prior to the Closing Date.
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<PAGE> 34
f. The Securities shall have been approved for
quotation on NNM.
g. In the event that the Underwriters exercise their
option provided in Section 2 hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder shall
be true and correct as of the Option Closing Date and, at the relevant Option
Closing Date, the Underwriters shall have received:
(1 A certificate, dated such Option
Closing Date, of the President or any Vice President of the Company and
of the chief financial or accounting officer of the Company confirming
that the certificate delivered at the Closing Date pursuant to Section
8 (c) hereof remains true and correct as of such Option Closing Date.
(2 The favorable opinion of Brobeck,
Phleger & Harrison, LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Option Closing
Date, relating to the Option Securities to be purchased on such Option
Closing Date and otherwise to the same effect as the opinion required
by Sections 8 (b)(i) and 8 (b)(iv) hereof.
(3 The favorable opinion of
______________________________, in form and substance satisfactory to
counsel for the Underwriters, dated such Option Closing Date to the
same effect as the opinion required by Section 8(b)(ii) hereof.
(4 The favorable opinion of Skadden,
Arps, Slate, Meagher & Flom (Illinois), counsel for the Underwriters,
dated such Option Closing Date, relating to the Option Securities to be
purchased on such Option Closing Date and otherwise to the same effect
as the opinion required by Sections 8 (b)(iii) and 8 (b)(iv) hereof.
(5 A letter from McGladrey & Pullen,
LLP in form and substance satisfactory to the Underwriters and dated
such Option Closing Date, substantially the same in form and substance
as the letter furnished to the Underwriters pursuant to
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<PAGE> 35
Section 8(e) hereof, except that the "specified date" in the letter
furnished pursuant to this Section 8(g)(5) shall be a date not more
than three business days prior to such Option Closing Date.
h. At the date of this Agreement, the Underwriters
shall have received lock-up agreements in form and substance satisfactory to the
Underwriters from each of the individuals set forth in Schedule II hereto.
i. Counsel for the Underwriters shall have been
furnished with such documents and opinions as they may require for the purpose
of enabling them to pass upon the issuance and sale of the Securities as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations or warranties or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Underwriters and counsel for
the Underwriters.
j. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
k. Any certificate or document signed by any officer
of the Company and delivered to you, as Representatives of the Underwriters, or
to counsel for the Underwriters, shall be deemed a representation and warranty
by the Company to each Underwriter as to the statements made therein.
l. If any condition specified in this Section 8 shall
not have been fulfilled when and as required to be fulfilled, this Agreement,
or, in the case of any condition to the purchase of Option Securities, on an
Option Closing Date which is after the Closing Date, the obligations of the
several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Date or such an Option Closing Date as the case may be, and
such termination shall be without liability of any party to any other party
except as provided in Section 9 and except that Sections 6 and 7 shall survive
any such termination and remain in full force and effect.
9. EXPENSES. Whether or not the transaction contemplated by
this Agreement is consummated or this Agreement is terminated, the Company
agrees to pay the following costs and expenses and all other costs and expenses
incident to the
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<PAGE> 36
performance by the Company of its obligations under this Agreement including but
not limited to cost and expenses of or relating to: (i) the preparation,
printing or reproduction, and filing with the Commission of the Registration
Statement (including financial statements and exhibits thereto), each
preliminary prospectus, the Prospectus, and each amendment or supplement to any
of them; (ii) the printing (or reproduction) and delivery (including postage,
air freight and charges for counting and packaging) of such copies of the
Registration Statement, each preliminary prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Securities; (iii) the
preparation, printing, authentication, issuance and delivery of certificates for
the Securities, including any stamp taxes in connection with the original
issuance and sale of the Securities; (iv) the printing (or reproduction) and
delivery of this Agreement, the Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the original
issuance and sale of the Securities; (v) the registration of the Common Stock
under the 1934 Act and the quotation of the Securities on NNM; (vi) the
registration or qualification of the Securities for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(g)
hereof (including the fees, expenses and disbursements of one counsel for the
Underwriters relating to the preparation, printing or reproduction, and delivery
of the Blue Sky Memoranda and such registration and qualification); (vii) the
filing fees and the fees and expenses of counsel for the Underwriters incident
to securing any required review by the NASD; (viii) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company; and (ix) the fees and expenses of the transfer
agent.
If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 or pursuant to clauses (ii), (iii), (iv) and (v)
of Section 11 hereof) or if this Agreement shall be terminated by the
Underwriters because of any failure or refusal on the part of the Company to
comply, in any material respect, with the terms or fulfill, in any material
respect, any of the conditions of this Agreement, the Company agrees to
reimburse the Representatives for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by or on behalf of the
parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the
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<PAGE> 37
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Securities may commence, when notification
of the effectiveness of the Registration Statement or such post-effective
amendment has been released by the Commission. Until such time as this Agreement
shall have become effective, it may be terminated by the Company, by notifying
you, or by you, as Representatives of the several Underwriters, by notifying the
Company.
If one or more of the Underwriters shall fail on the Closing
Date to purchase the Initial Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
a. if the number of Defaulted Securities does not
exceed 10% of the number of Initial Securities, the non-defaulting Underwriters
shall be obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
b. if the number of Defaulted Securities exceeds 10%
of the number of Initial Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone the Closing Date for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
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11. TERMINATION OF AGREEMENT. a. The Underwriters may
terminate this Agreement, by notice to the Company, at any time at or prior to
the Closing Date or Option Closing Date, as the case may be, (i) if there has
been, since the date of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse change
or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and the Subsidiary considered as
one enterprise, whether or not arising in the ordinary course of business, (ii)
if there has occurred any change in the financial markets in the United States
or elsewhere or any outbreak of hostilities or escalation thereof or other
calamity or crisis the effect of which is such as to make it, in your judgement,
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (iii) if trading in the Common Stock has been
suspended by the Commission, or if trading generally on the New York Stock
Exchange, the American Stock Exchange or in the over-the-counter markets has
been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by such exchange or
markets or by order of the Commission or any other governmental authority, or if
a banking moratorium has been declared by either Federal, New York or Illinois
authorities, (iv) the enactment, publication, decree or other promulgation of
any Federal or state statute, regulation, rule or order of any court or other
governmental authority which in your judgement materially and adversely affects
or may materially or adversely affect the business or operations of the Company
and the Subsidiary or (v) the taking of any action by any Federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your judgement has a material adverse effect on the securities markets in the
United States, and would in your judgement make it impracticable or inadvisable
to market the Securities or to enforce any contract for the sale thereof. Notice
of such termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
b. If this Agreement is terminated pursuant to this
Section 11, such termination shall be without liability of any party to any
other party except as provided in Section 9 and provided further that Sections 6
and 7 shall survive such termination and remain in full force and effect.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements
under the caption "Underwriting" in any preliminary prospectus and in the
Prospectus constitute the only information
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<PAGE> 39
furnished by or on behalf of the Underwriters through you as such information is
referred to in Sections 6(a) and 7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5,
10 and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company at the office of the
Company at, 25200 Commercentre Drive, Lake Forest, California 92630-8810,
Attention: President and Chief Executive Officer; or (ii) if to you, as
Representatives of the several Underwriters, care of Vector Securities
International, Inc. 1751 Lake Cook Road, Suite 350, Deerfield, Illinois 60015,
Attention: Syndicate Department.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois
applicable to contracts made and to be performed within the State of Illinois.
This Agreement may be signed in various counterparts which together constitute
one and the same instrument. If signed in counterparts, this Agreement shall not
become effective unless at least one counterpart hereof shall have been executed
and delivered on behalf of each party hereto.
15. SUCCESSORS. This Agreement has been and is made solely for
the benefit of the several Underwriters, the Company, its directors and
officers, the other persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Securities in his
status as such purchaser.
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Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
ANSYS Diagnostics, Inc.
By:
----------------------------------
Stephen K. Schultheis
President and Chief
Executive Officer
Confirmed as of the date first above
mentioned on behalf of themselves and
the other several Underwriters named in
Schedule I hereto.
Vector Securities International, Inc.
Sutro & Co. Incorporated
As Representatives of the Several Underwriters named on Schedule I hereto.
By Vector Securities International, Inc.
By:
------------------------------------
Shahab Fatheazam
Managing Director
40
<PAGE> 41
SCHEDULE I
ANSYS DIAGNOSTICS, INC.
<TABLE>
<CAPTION>
NUMBER OF INITIAL
SECURITIES PURCHASED
UNDERWRITER TO BE FROM THE COMPANY
----------- ----------------------
<S> <C>
Vector Securities International, Inc..................
Sutro & Co. Incorporated..............................
Total
</TABLE>
<PAGE> 42
SCHEDULE II
ANSYS DIAGNOSTICS, INC.
LIST OF STOCKHOLDERS SUBJECT TO LOCK-UP AGREEMENTS
<TABLE>
<CAPTION>
Number of Securities
Name Subject to Lock-Up
- ---- --------------------
<S> <C>
</TABLE>
<PAGE> 43
SCHEDULE III
ANSYS DIAGNOSTICS, INC.
LIST OF UNITED STATES PATENTS
<PAGE> 44
SCHEDULE IV
ANSYS DIAGNOSTICS, INC.
LIST OF UNITED STATES PATENT APPLICATIONS
<PAGE> 45
SCHEDULE V
ANSYS DIAGNOSTICS, INC.
LIST OF FOREIGN PATENTS
<PAGE> 46
SCHEDULE VI
ANSYS DIAGNOSTICS, INC.
LIST OF FOREIGN PATENT APPLICATIONS
<PAGE> 47
SCHEDULE VII
ANSYS DIAGNOSTICS, INC.
LIST OF EXCLUSIVE LICENSES TO USE
UNITED STATES AND FOREIGN PATENTS AND PATENT APPLICATIONS
<PAGE> 48
SCHEDULE VIII
ANSYS DIAGNOSTICS, INC.
LIST OF EXCLUSIVE LICENSES TO USE
UNITED STATES AND FOREIGN PATENTS AND PATENT APPLICATIONS
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ANSYS DIAGNOSTICS, INC.
A DELAWARE CORPORATION
Ansys Diagnostics, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
ONE: The original Certificate of Incorporation of this
corporation was filed with the Secretary of State of the State of Delaware on
March 1, 1999, under its present name.
TWO: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law.
THREE: The stockholder approval required by Section 242 of the
Delaware General Corporation Law was obtained by written consent of the common
stockholders of this corporation in accordance with Section 228 of the Delaware
General Corporation Law.
FOUR: The Amended and Restated Certificate of Incorporation of
this corporation shall be amended and restated to read in full as follows:
I.
The name of this corporation (hereinafter, the "Corporation") is
Ansys Diagnostics, Inc.
II.
The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, Dover, Delaware 19901, County of
Kent and the name of the registered agent at that address is National Registered
Agent, Inc.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Laws of Delaware.
IV.
A. Classes of Stock. This Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is
Thirty Five Million (35,000,000) shares. Thirty Million (30,000,000) shares,
$.0001 par value per share, shall be Common Stock and Five Million (5,000,000)
shares, $.0001 par value per share, shall be Preferred Stock.
<PAGE> 2
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, privileges and restrictions granted to or imposed upon the shares
of preferred stock or the holders thereof are as follows:
1. Designation of Series A Redeemable Preferred Stock. Four Thousand
(4,000) shares of preferred stock of the Corporation shall be designated and
known as "Series A Redeemable Preferred Stock."
2. Designation of Series B Redeemable Preferred Stock. Fourteen
Thousand (14,000) shares of preferred stock shall be designated and known as
"Series B Convertible Preferred Stock." The Series A Redeemable Preferred Stock
and the Series B Convertible Preferred Stock are sometimes hereinafter
collectively referred to as the "Preferred Stock."
3. Dividends. The holders of the shares of the outstanding Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation, out of any assets at the time legally available
therefor, dividends at the rate of $10.00 per share of Preferred Stock per
annum, and no more, payable in cash quarterly on the first day of January,
March, June and September, each year beginning March 1, 1989. Such dividends
shall accrue on each such share from the date of its original issuance and shall
accrue from day to day, whether or not earned or declared.
Such dividends shall be cumulative so that if dividends in respect
of any previous quarterly dividend period shall not have been paid on or
declared and set apart for all Preferred Stock at the time outstanding, such
deficiency shall be fully paid on or declared and the full amount thereof set
apart for payment on such shares before the Corporation makes any distribution
(as hereinafter defined) to holders of shares of common stock of the Corporation
(the "Common Shares") or any other class or series of stock hereinafter
authorized. For purposes of this Section 3, "distribution" means the transfer of
cash or property without consideration, whether by way of dividend or otherwise
(except a dividend in Common Shares or shares of the Corporation ranking upon
liquidation, dissolution, winding up or otherwise junior in right of payment to
the shares of Preferred Stock) or the purchase or redemption of shares of the
Corporation for cash or property (except the purchase of up to 1,262,904 Common
Shares issued to employees of the Corporation, which the Corporation has the
right to repurchase under certain circumstances), including any such transfer,
purchase or redemption by a subsidiary of the Corporation. For purposes of this
Section 3, the time of any distribution by way of dividend shall be the date of
declaration thereof and the time of any distribution by purchase or redemption
of shares shall be the date on which cash or property is transferred by the
Corporation, whether or not pursuant to a contract of an earlier date; provided
that where a debt security or instrument is issued in exchange for shares the
time of the distribution shall be the date on which the Corporation acquires the
shares in such exchange.
When full cumulative dividends are not paid upon both series of
shares of Preferred Stock, all dividends declared upon such shares shall be
declared pro rata so that the amount of dividends declared per share of Series A
Redeemable Preferred Stock and Series B Convertible Preferred Stock shall in all
cases bear to each other the same ratio that accrued and unpaid accumulated
dividends per share on the shares of Series A Redeemable Preferred Stock and
Series B Convertible Preferred Stock bear to each other.
2
<PAGE> 3
4. Liquidation Preference. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Preferred Stock shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital or surplus of any
nature, an amount equal to $100 per share of Preferred Stock and a further
amount equal to any accumulated dividends accrued and unpaid thereon, as
provided in Section 3, to the date that payment is made available to the holders
of shares of Preferred Stock, whether earned or declared or not, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Shares or any shares of the Corporation ranking upon liquidation,
dissolution, winding up or otherwise junior or pari passu in right of payment to
the shares of Preferred Stock.
If upon such liquidation, dissolution or winding up, the assets thus
distributed among the holders of shares of Series A Redeemable Preferred Stock
and Series B Convertible Preferred Stock shall be insufficient to permit the
payment to such stockholders of the full preferential amounts set forth in the
immediately preceding paragraph, then the entire assets of the Corporation to be
distributed shall be distributed ratably among the holders of shares of Series A
Redeemable Preferred Stock and Series B Convertible Preferred Stock in
proportion to the full amounts to which they otherwise would be entitled.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, subject to all of the preferential
rights of the holders of shares of Preferred Stock on distribution or otherwise,
the holders of Common Shares and any shares of the Corporation ranking upon
liquidation, dissolution, winding-up or otherwise junior or pari passu in right
of payment to the shares of Preferred Stock shall be entitled to receive all
remaining assets of the Corporation.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation which does not involve the distribution by the Corporation of
cash or other property to holders of the Common shares, shall not be deemed to
be a liquidation, dissolution or winding up within the meaning of this Section
4.
Each holder of an outstanding share of Preferred Stock shall be
deemed to have consented, for purposes of Section 170 of the Delaware General
Corporation Law, to the distributions made by the Corporation in connection with
the repurchase of up to 1,262,904 Common Shares issued to employees of the
Corporation, which the Corporation has the right or obligation to repurchase
under certain circumstances.
5. Redemption of Series A Redeemable Preferred Stock.
(a) General. The Corporation, at the option of the Board of
Directors with the consent of the holders of a majority of the Common Shares,
may at any time or from time to time redeem the whole or any part of the
outstanding shares of Series A Redeemable Preferred Stock by paying therefor in
cash one hundred dollars ($100) per share plus an amount in cash equal to all
accumulated dividends accrued and unpaid thereon, as provided in Section 3,
whether earned or declared or not, to and including the date fixed for
redemption, such sum being hereinafter sometimes referred to as the "Redemption
Price." In case of the redemption of
3
<PAGE> 4
a part only of the outstanding shares of Series A Redeemable Preferred Stock,
the Corporation shall designate pro rata the shares to be redeemed. Less than
all of the shares of Series A Redeemable Preferred Stock at any time outstanding
may not be redeemed until all accumulated dividends accrued and unpaid upon all
shares of Series A Redeemable Preferred Stock outstanding shall have been paid
for all past dividend periods, and until full dividends for the then current
dividend period on all shares of Series A Redeemable Preferred Stock then
outstanding, other than the shares to be redeemed, shall have been paid or
declared and the full amount thereof set apart for payment.
(b) Notice of Redemption. At least ten (10) days' previous notice
by mail, postage prepaid, shall be given to the holders of record of shares of
Series A Redeemable Preferred Stock to be redeemed pursuant to subparagraph (a)
above, such notice shall be addressed to each such holder at the address of such
holder appearing on the books of the Corporation or given by such holder to the
Corporation for the purpose of notice, or if no such address appears or is so
given, at the place where the principal office of the Corporation is located.
Such notice shall state the date fixed for redemption and the Redemption Price,
and shall call upon such holder to surrender to the Corporation on said date at
the place designated in the notice such holder's certificate or certificates
representing shares of Series A Redeemable Preferred Stock to be redeemed on or
after the date fixed for redemption and stated in such notice, each holder of
shares of Series A Redeemable Preferred Stock called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price. If less than all of the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such notice of redemption shall have been
duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available therefor, then, notwithstanding that any
certificate for shares of Series A Redeemable Preferred Stock so called for
redemption shall not have been surrendered for cancellation, shares so called
shall no longer be outstanding, shall not be transferred on the books of the
Corporation and the holders thereof shall cease to be stockholders with respect
to such shares, and shall have no rights with respect thereto (including,
without limitation, the right to receive dividends thereon after the redemption
date), except the right to receive payment of the Redemption Price without
interest, upon surrender of their certificate therefor.
(c) Redemption by Deposit. If, on or prior to any date fixed for
redemption of shares of Series A Redeemable Preferred Stock, the Corporation
deposits, with any bank or trust company in the State of California, as a trust
fund, a sum sufficient to redeem, on the date fixed for redemption thereof, the
shares called for redemption, with irrevocable instructions and authority to the
bank or trust company to give the notice of redemption thereof (or to complete
the giving of such notice if theretofore commenced) and to pay, on or after the
date fixed for redemption or prior thereto, the Redemption Price to their
respective holders upon the surrender of their share certificates, then from and
after the date of the deposit (although prior to the date fixed for redemption),
notwithstanding that any certificate for shares of Series A Redeemable Preferred
Stock so called for redemption shall not have been surrendered for cancellation,
the shares so called shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto (including, without limitation, the right to receive
dividends thereon after the redemption date), except the right to receive from
the bank or trust company payment of the Redemption Price
4
<PAGE> 5
without interest, upon the surrender of their certificates therefor. Any
interest accrued on any funds so deposited shall be the property of, and paid
to, the Corporation. If the holders of shares of Series A Redeemable Preferred
Stock so called for redemption shall not, at the end of two years (or any longer
period required by law) from the date fixed for redemption thereof have claimed
any funds so deposited, such bank or trust company shall thereupon pay over to
the Corporation such unclaimed funds, and such bank or trust company shall
thereafter be relieved of all responsibility in respect thereof to such holders
and such holders shall look only to the Corporation for payment of the
Redemption Price without interest.
(d) Priority on Redemption. The Corporation shall not, directly
or indirectly, redeem or purchase or otherwise acquire for value any Common
Shares or any shares of the Corporation ranking on liquidation, dissolution,
winding up or otherwise, junior or pari passu in right of payment to the shares
of Series A Redeemable Preferred Stock (other than not more than 1,262,904
Common Shares issued to employees of the Corporation which the Corporation has
the right or obligation to repurchase under certain circumstances) unless the
Corporation shall contemporaneously redeem all of the then outstanding shares of
Series A Redeemable Preferred Stock at the applicable Redemption Price
(including accrued and unpaid accumulated dividends thereon to the redemption
date) set forth in subparagraph (a) of this Section 5.
6. Conversion Rights of Series B Convertible Preferred Stock. The
holders of shares of Series B Convertible Preferred Stock shall have conversion
rights as follows:
(a) Right to Convert. Each share of Series B Convertible
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time at the office of the Corporation or any transfer agent for such shares
of Series B Convertible Preferred Stock, into such number of fully paid and
nonassessable Common Shares (calculated to the nearest 1/100th of a share,
fractions of less than 1/100th of a share being disregarded) as is determined by
dividing $100 by the Conversion Price (as hereinafter defined) in effect at the
time of conversion determined as hereinafter provided. The price at which Common
Shares shall be deliverable upon conversion (herein called the "Conversion
Price") shall be initially $0.38445 per Common Share. Such initial Conversion
Price shall be subject to adjustment from time to time in certain instances, as
hereinafter provided. Upon surrender of any share of Series B Redeemable
Preferred Stock for conversion, the Corporation shall pay the holder thereof any
accumulated dividends accrued and unpaid thereon; provided, however, that such
accumulated dividends shall not be paid in cash if, at the time of such payment,
an Event of Default (as defined in those certain Credit Agreements, dated as of
September 24, 1997 and May 14, 1997, between the Corporation and Southern
California Bank, as they may be amended from time to time (collectively, the
"Credit Agreements")), has occurred and is continuing or if payment would cause
such an Event of Default.
(b) Automatic Conversion.
(i) Each share of Series B Convertible Preferred Stock shall
automatically be converted into Common Shares at the then effective Conversion
Price immediately upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Shares for the
account of the Corporation to the public.
5
<PAGE> 6
(ii) In the event of such an offering, the person(s) entitled
to receive the Common Shares issuable upon such automatic conversion of Series B
Convertible Preferred Stock shall not be deemed to have converted such shares of
Series B Convertible Preferred Stock until immediately prior to the closing of
such sale of securities. Upon the occurrence of such an offering the outstanding
shares of Series B Convertible Preferred Stock shall be converted automatically
without further action by the holders of such shares of Series B Convertible
Preferred Stock and whether or not the certificates representing such shares of
Series B Convertible Preferred Stock are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the Common Shares issuable upon conversion of
any shares of Series B Redeemable Preferred Stock unless certificates evidencing
such shares of Series B Redeemable Preferred Stock are either delivered to the
Corporation or any transfer agent as hereinafter provided, or the holder
notifies the Corporation that said certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation against any loss incurred by it in connection therewith. Upon
the occurrence of the automatic conversion of the shares of Series B Redeemable
Preferred Stock, the holders of shares of Series B Redeemable Preferred Stock
shall surrender the certificates representing such shares at the office of the
Corporation or of any transfer agent for the Series B Convertible Preferred
Stock or the Common Shares. Thereupon, there shall be issued and delivered to
such holder of shares of Series B Convertible Preferred Stock, promptly at such
office and in his name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of Common Shares into which the
shares of Series B Convertible Preferred Stock surrendered were convertible on
the date on which the event effecting the automatic conversion occurred.
(c) Manner of Conversion. Except as otherwise provided in
subparagraph (b) of this Section 6, before any holder of shares of Series B
Convertible Preferred Stock shall be entitled to convert the same into Common
Shares, such holder shall surrender the certificate or certificates therefor,
duly endorsed in blank or accompanied by proper instruments of transfer, at the
office of the Corporation or of any transfer agent for shares of Series B
Convertible Preferred Stock, and shall give written notice to the Corporation at
such office that such holder elects to convert the same and shall state in
writing therein the name or names in which such holder wishes the certificate or
certificates for Common Shares to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder, or to
such holder's nominee or nominees, certificates for the number of full Common
Shares to which such holder shall be entitled, as aforesaid, together with cash
in lieu of any fraction of a share. Such conversion shall be deemed to have been
made as of the date of such surrender of the shares of Series B Convertible
Preferred Stock to be converted, and the person or persons entitled to receive
the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares on such date.
(d) Adjustment of Conversion Price. The Conversion Price
shall be subject to adjustment from time to time as follows:
6
<PAGE> 7
(i) Subdivision or Combination of Common Shares. In case
the Corporation shall at any time subdivide its outstanding Common Shares into a
greater number of shares, the Conversion Price shall forthwith be reduced
proportionately. Conversely, in case the outstanding Common Shares shall at any
time be combined into a smaller number of shares, the Conversion Price shall
forthwith be increased proportionately.
(ii) Dividends in Common Shares, Other Stock or
Property. If at any time or from time to time the holders of Common Shares (or
any shares of stock or other securities at the time receivable upon the
conversion of shares of Series B Convertible Preferred Stock) shall have
received or become entitled to receive, without payment therefor,
(x) Common Shares or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Shares, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
(y) any cash paid or payable otherwise than as a
cash dividend, or
(z) Common Shares or additional stock or other
securities or property (including cash) by way of spin-off, split-up,
reclassification or similar corporate rearrangement (other than Common Shares
issued as a stock split or combination, adjustments in respect of which shall be
covered by the terms of subparagraph (d)(i) of this Section 6) then
(1) in the case of holders of Common Shares
receiving or becoming entitled to receive Common Shares as provided in clause
(x) of this subparagraph (d)(ii) of Section 6, the Conversion Price then in
effect shall be decreased at the time of issuance of such Common Shares, or in
case a record date for the distribution of such Common Shares is set, on such
record date, as provided in subparagraph (d)(i) of this Section 6 as though such
distribution or proposed distribution were a stock split, and
(2) in all other cases, the holders of shares
of Series B Convertible Preferred Stock shall, upon conversion thereof, be
entitled to receive, in addition to the number of Common Shares receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to in clauses (y) and (z) of this subparagraph (d)(ii) of Section 6)
which such holders would hold on the date of such conversion had such holders
been holders of record of such Common Shares as of the date on which holders of
Common Shares received or became entitled to receive such shares and all other
additional stock and other securities and property.
(iii) Reorganization, Reclassification, Consolidation,
Merger or Sale. If any reorganization of the capital stock of the Corporation,
or any consolidation or merger of the Corporation with another corporation, or
the sale of all or substantially all of its assets to another corporation shall
be effected in such a way that holders of Common Shares shall be entitled to
receive stock, securities or assets of the Corporation or another corporation,
as
7
<PAGE> 8
the case may be, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made and
duly executed documents evidencing the same from the Corporation, or its
successor, shall be delivered to each holder of shares of Series B Convertible
Preferred Stock whereby such holder shall have the right, at a price not to
exceed the Conversion Price, to receive (in lieu of the Common Shares
immediately theretofore receivable upon conversion) such shares of stock,
securities or assets as may be issued by the Corporation or another corporation,
as the case may be, with respect to or in exchange for a number of outstanding
Common Shares equal to the number of Common Shares immediately theretofore
receivable upon conversion. In any reorganization described above, appropriate
provision shall be made with respect to the rights and interests of the holders
of shares of Series B Convertible Preferred Stock to the end that the provisions
of the Series B Convertible Preferred Stock (including, without limitation,
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be practicable, in relation to any shares of stock,
securities or assets thereafter deliverable upon conversion. The Corporation
will not effect any such consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Corporation)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument, executed and mailed or delivered to
each holder of shares of Series B Redeemable Preferred Stock at the last address
of such holder appearing on the books of the Corporation, the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
(iv) Adjustment Upon Issuance of Additional Shares of
Common.
(x) Special Definitions. For purposes of this
subparagraph (d)(iv) of Section 6, the following definitions shall apply:
(1) `Option' shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Shares,
Convertible Securities or other options.
(2) `Original Issue Date' shall mean December
12, 1988.
(3) `Convertible Securities' shall mean any
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Shares.
(4) `Additional Shares of Common' shall mean
all Common Shares issued (or, pursuant to subparagraph (d)(iv)(y)(2) of this
Section 6, deemed to be issued) by the Corporation after the Original Issue
Date, other than:
a. Common Shares issued or issuable upon
conversion of shares of Series B Convertible Preferred Stock;
8
<PAGE> 9
b. Common Shares issued or issuable upon
exercise of the Warrant, dated December 12, 1988, issued by the Corporation in
favor of Security Pacific National Bank or the Option granted to Donald W.
Jones, M.D. and Ms. Julie E. Jones (the "Joneses") pursuant to that certain
option Agreement, dated as of December 12, 1988, between the Corporation and the
Joneses;
c. Common Shares issued or issuable to
officers or employees of, or consultants to, the Corporation, pursuant to a
stock grant or option plan or other employee stock incentive program
(collectively, the "Plans") approved by the Board of Directors, and Common
Shares repurchased by the Corporation pursuant to the terms of those certain
Management Subscription Agreements, dated as of December 12, 1988, and reissued
by the Corporation to its officers, employees or consultants, subject, in each
case, to adjustment for all subdivisions and combinations of Common Shares after
the Original Issue Date; and
d. Common Shares issued or issuable by
way of dividend or other distribution on Common Shares excluded from the
definition of Additional Shares of Common by the foregoing clauses a., b. and c.
of this subparagraph (d)(iv)(x)(4) of Section 6 or on Common Shares so excluded.
(y) Adjustment to Conversion Price.
(1) No Adjustment of Conversion Price. No
adjustments to the Conversion Price shall be made in respect of the issuance of
Additional Shares of Common under this subparagraph (d)(iv)(y) of Section 6
unless the consideration per share for an Additional Share of Common issued or
deemed to be issued by the Corporation is less than the Conversion Price in
effect on the date of, and immediately prior to, such issuance or deemed
issuance.
(2) Issue of Securities Deemed Issue of
Additional Shares of Common. In the event the Corporation at any time or from
time to time after the Original Issue Date shall issue any options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such options or
Convertible Securities, then the maximum number of Common Shares (as set forth
in the instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such numbers) issuable upon the exercise
of such options or, in the case of Convertible Securities or options therefor,
upon the conversion or exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common issued as of the time of the issuance of such
Options or Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date; provided that Additional
Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to subparagraph (d)(iv)(y)(4) of
Section 6) of such Additional Shares of Common would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be; and provided further that in any case in which
Additional Shares of Common are deemed to be issued:
a. no further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
Common Shares upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
9
<PAGE> 10
b. if such options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
Common Shares issuable upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any adjustments
subsequent to the date thereof based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
c. upon the expiration or cancellation of any such
options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon such
expiration or cancellation, be recomputed as if:
A) in the case of Convertible Securities or
Options for Common Shares, the only Additional Shares of Common issued were the
Common Shares, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
B) in the case of options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such options, and the
consideration received by the Corporation for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation (determined
pursuant to subparagraph (d)(iv)(y)(4)(2) of this Section 6) upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
d. no readjustment pursuant to clauses b. and c.
of this subparagraph (d)(iv)(y)(2) of Section 6 shall have the effect of
increasing the Conversion Price to an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment date, or (ii) the Conversion Price
that would have resulted from any issuance of Additional Shares of Common
between the original adjustment date and such readjustment date; and
e. in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause c. of this subparagraph (d)(iv)(y)(2) of Section
6.
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(3) Adjustment Upon Issuance of Additional
Shares of Common. In the event the Corporation at any time or from time to time
after the Original Issue Date shall issue Additional Shares of Common (including
Additional Shares Common deemed to be issued pursuant to subparagraph
(d)(iv)(y)(2) of this Section 6, but excluding Additional Shares of Common
issued pursuant to subparagraphs (d)(i) or (d)(ii) of this Section 6,
respectively) without consideration or for a consideration per share less than
the Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction (x) the numerator
of which shall be the number of Common Shares outstanding immediately prior to
such issue (excluding Common Shares if such shares or securities on account of
which such shares were issued would have been excluded from the definition of
"Additional Shares of Common" by virtue of clauses b., c. and d. of subparagraph
(d)(iv)(x)(4) of this Section 6) plus the number of Common Shares which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common so issued would purchase at such Conversion Price,
and (y) the denominator of which shall be the number of Common Shares
outstanding immediately prior to such issue (excluding Common Shares if such
shares or securities on account of which such shares were issued would have been
excluded from the definition of "Additional Shares of Common" by virtue of
clauses b., c. and d. of subparagraph (d)(iv)(x)(4) of this Section 6) plus the
number of such Additional Shares of Common so issued.
(4) Determination of Consideration. For
purposes of this subparagraph (d)(iv)(y) of Section 6, the consideration
received by the Corporation for the issue of any Additional Shares of Common
shall be computed as follows:
a. Cash and Property. Such consideration shall:
A) Insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
B) Insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the Corporation; and
C) In the event Additional Shares of Common
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses A) and B) of this
subparagraph (d)(iv)(y)(4) of Section 6, as determined in good faith by the
Board.
b. Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to subparagraph (d)(iv)(y)(2) of this
Section 6, relating to options and Convertible Securities, shall be determined
by dividing:
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A) the total amount, if any, received or
receivable by the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities; by
B) the maximum number of Common Shares (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such options or the conversion 6r exchange of such Convertible
Securities.
(v) De Minimis Adjustments. No adjustment or
readjustment in the Conversion Price pursuant to this subparagraph (d) of
Section 6 shall be required unless such adjustment or readjustment would require
an increase or decrease of at least 1% in the Conversion Price, as adjusted from
time to time; provided, however, that any adjustments which by reason of this
subparagraph (d)(v) of Section 6 are not required to be, and are not, made shall
be carried forward and taken into account in any subsequent adjustment.
(vi) Notice of Adjustment. Upon any adjustment of the
conversion Price, the Corporation shall give written notice thereof, by first
class mail, postage prepaid, addressed to each holder of Series B Convertible
Preferred Stock at the address of such holders as shown on the books of the
Corporation. The notice shall be signed by the Corporation's chief financial
officer and shall state the Conversion Price resulting from such adjustment
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(vii) Other Notices. If at any time:
(x) the Corporation shall declare any cash
dividend upon its capital stock;
(y) the Corporation shall declare any dividend
upon its Common Shares payable in stock or make any special dividend or other
distribution to the holders of its Common Shares;
(z) the Corporation shall offer for subscription
pro rata to the holders of its Common Shares any additional shares of stock of
any class or other rights;
(xx) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation; or consolidation or
merger of the Corporation with, or sale of all or substantially all of its
assets to, another corporation;
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(yy) there shall be voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation; or
(zz) there shall be an initial public offering of
the Corporation's securities;
then, in any one or more of such cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of Series B Convertible
Preferred Stock at the address of such holder appearing on the books of the
Corporation (a) at least thirty (30) days' prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up or public offering, at least thirty (30) days' prior
written notice of the date when the same shall take place. Any notice given in
accordance with the foregoing clause (a) of this subparagraph (d)(vii) of
Section 6 shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Shares shall be
entitled thereto. Any notice given in accordance with the foregoing clause (b)
of this subparagraph (d)(vii) of Section 6 shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
(viii) Certain Events. If any change in the outstanding
Common Shares of the Corporation or any other event occurs as to which the other
provisions of this subparagraph (d) of Section 6 are not strictly applicable or
if strictly applicable would not fairly protect the rights of the holders of
Series B Convertible Preferred Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors of the Corporation
shall make an adjustment in the Conversion Price or the application of such
provisions, in accordance with such essential intent and principles so as to
protect such rights as aforesaid. The adjustment shall be such as will give each
holder of shares of Series B Convertible Preferred Stock upon conversion for the
same aggregate Conversion Price the total number, class and kind of shares as
such holder would have owned had such holder converted prior to the event and
had such holder continued to hold the Common Shares received upon such
conversion until after the event requiring adjustment.
(e) Reservation of Common Shares. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of shares of Series B
Convertible Preferred Stock, the full number of Common Shares deliverable upon
the conversion of all shares of Series B Convertible Preferred Stock from time
to time outstanding. The Corporation shall from time to time, in accordance with
the laws of the State of Delaware, increase the authorized amount of its Common
Shares if at any time the authorized number of Common Shares remaining unissued
shall not be sufficient to permit the conversion of all of the shares of Series
B Convertible Preferred Stock at the time outstanding.
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(f) Payment of Taxes. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery of
Common Shares on conversion of shares of Series B Convertible Preferred Stock
pursuant hereto. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of Common Shares in a name other than that in which the shares of
Series B Convertible Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax, or has established
to the satisfaction of the Corporation that such tax has been paid.
7. Voting Rights of Series A Redeemable Preferred Stock.
(a) No General Voting Rights. Except as provided in this Section 7
or as otherwise provided by law, the holders of the Common Shares and shares of
Series B Convertible Preferred Stock issued and outstanding shall have and
possess the exclusive right to notice of stockholders' meetings, and the
exclusive voting rights and powers, and the holders of shares of Series A
Redeemable Preferred Stock shall not be entitled to notice of any stockholders'
meetings or to vote upon the election of directors or upon any other matter. On
such matters set forth below, upon which the holders of shares of Series A
Redeemable Preferred Stock are entitled to vote, each such holder shall have ten
(10) votes per share.
(b) Voting Rights on Extraordinary Matters. So long as any of the
shares of Series A Redeemable Preferred Stock shall be outstanding the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the total
number of shares of Series A Redeemable Preferred Stock outstanding:
(i) amend or repeal any provision of, or add any provision to,
this Certificate of Incorporation, if such action would alter or change in any
manner the rights, preferences or privileges of the shares of Series A
Redeemable Preferred Stock or materially adversely affect the holders of shares
of Series A Redeemable Preferred Stock;
(ii) increase the authorized number of shares of Series A
Redeemable Preferred Stock;
(iii) create any new class of shares, or any other securities
convertible into equity securities, of the Corporation having preferences over
or being on a parity with the shares of Series A Redeemable Preferred Stock as
to dividends, upon liquidation, dissolution, winding-up or otherwise, unless the
purpose of creation of such class or other securities is, and the proceeds to be
derived from the sale and issuance thereof are to be used for, the retirement of
all shares of Series A Redeemable Preferred Stock then outstanding;
(iv) purchase any shares of Series B Convertible Preferred Stock
or Common Shares except as expressly permitted herein;
(v) merge or consolidate with any other corporation;
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(vi) sell, convey or otherwise dispose of, or create or incur any
mortgage, lien, charge or encumbrance on or security interest in or pledge of,
or sell and leaseback, all or substantially all of the property or business of
the Corporation, except as contemplated by the terms of the Credit Agreements;
(vii) effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of; or
(viii) incur, assume or guarantee any indebtedness (other than
such as may be represented by the obligation to pay rent under leases) maturing
more than eighteen (18) months after the date on which it is incurred, assumed,
or guaranteed by the corporation, except purchase money obligations, obligations
assumed as part of the price of property purchased, or the extension, renewal or
refunding of any thereof and except pursuant to the Credit Agreements.
8. Voting Rights of Series B Convertible Preferred Stock.
(a) General. Except as provided in Section 7, the holders of shares
of Series B Convertible Preferred Stock, shall together with the holders of
Common Shares possess the exclusive right to notice of stockholders' meetings,
and the exclusive voting rights and powers, including without limitation, the
power to vote upon the election of directors; provided, however, that the
holders of shares of Series B Convertible Preferred Stock shall not be entitled
to vote on the redemption of the shares of Series A Redeemable Preferred Stock.
On all such matters upon which holders of shares of Series B Convertible
Preferred Stock shall be entitled to vote, each such holder shall have 137.26
votes per share.
(b) Right to Elect Directors. If (i) an Event of Default (as defined
in the Credit Agreements) shall have occurred and be continuing and, in the case
of any non-payment default, the holders of 66 2/3% of the outstanding shares of
Series B Convertible Preferred Stock shall not have consented to such Event of
Default and such Event of Default shall continue for a period of 90 days or, in
the case of a payment default, the holders of 66 2/3% of the outstanding shares
of Series B Convertible Preferred Stock shall not have consented to such Event
of Default and such Event of Default shall continue for a period of 45 days, or
(ii) at such time as the Credit Agreements are no longer in effect, two (2) or
more quarterly dividends, whether or not consecutive, on the shares of Series B
Convertible Preferred Stock shall be in arrears, in whole or in part, and the
holders of 66 2/3% of the outstanding shares of Series B Convertible Preferred
Stock shall not have consented to such arrearage the rights of holders of the
Series B Convertible Preferred Stock with respect to the election of directors
provided in subparagraph (a) of this Section 8 shall cease and the holders of
shares of Series B Convertible Preferred Stock as a class shall be entitled to
elect the smallest number of directors which will constitute a majority of the
authorized number of directors, and the holders of Common Shares voting as a
single class shall be entitled to elect the remaining members of the Board of
Directors. At such time as such Event of Default shall have been cured or
consented to by the holders of 66 2/3% of the outstanding shares of Series B
Convertible Preferred Stock, the rights of the holders of shares of Series B
Convertible Preferred Stock to vote as provided in this subparagraph (b) of
Section 8 shall cease, subject to renewal from time to time upon the same terms
and conditions and the rights of the holders of Series B Convertible Preferred
Stock to vote for the election of directors as provided in subparagraph (a) of
this Section 8 shall be renewed.
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At any time after the voting power to elect a majority of the Board
of Directors shall have become vested in the holders of shares of Series B
Convertible Preferred Stock as provided in this subparagraph (b) of Section 8,
the Secretary of the Corporation may, and upon the request of the record holders
of at least fifty percent (50%) of the shares of Series B Convertible Preferred
Stock then outstanding addressed to the Secretary at the principal executive
office of the Corporation shall, call a special meeting of the holders of shares
of Series B Convertible Preferred Stock and Common Shares for the election of
directors, to be held at the place and upon the notice provided in the Bylaws of
the Corporation for the holding of annual meetings. If such meeting shall not be
so called within ten (10) days' after personal service of the request, or within
fifteen (15) days' after mailing of the same by registered mail within the
United States of America, then a person designated by the record holders of at
least fifty percent (50%) of the shares of Series B Convertible Preferred Stock
then outstanding may call such meeting at the place and upon the notice above
provided, and for that purpose shall have access to the stock books of the
Corporation. At any meeting so called or at any annual meeting held while the
holders of shares of Series B Convertible Preferred Stock have the voting power
to elect a majority of the Board of Directors, the holders of a majority of the
then outstanding shares of Series B Convertible Preferred Stock, present in
person or by proxy, shall be sufficient to constitute a quorum for the election
of the directors which the holders of shares of Series B Convertible Preferred
Stock are entitled to elect pursuant to this subparagraph (b) of Section 8 and
the vote of a majority of the shares of Series B Convertible Preferred Stock
counted towards such quorum shall be sufficient to elect any such director. For
purposes of this subparagraph (b) of Section 8 only, each holder of shares of
Series B Convertible Preferred Stock shall be entitled to one vote per share.
The terms of office of all persons who are directors of the Corporation at the
time of such meeting shall terminate upon the election at such meeting by the
holders of shares of Series B Convertible Preferred Stock of the number of
directors they are entitled to elect, and the persons so elected as directors by
the holders of shares of Series B Convertible Preferred Stock, together with
such persons, if any, as may be elected as directors by the holders of Common
Shares, shall constitute the duly elected directors of the Corporation. In the
event the holders of Common Shares fail to elect the number of directors which
they are entitled to elect at such meeting, additional directors may be
appointed by the directors elected by the holders of shares of Series B
Convertible Preferred Stock.
Any director elected by holders of shares of Series B Convertible
Preferred Stock may be removed, and shall not be removed except by, the vote of
the holders of record of a majority of the outstanding shares of Series B
Convertible Preferred Stock who are at the time of such vote entitled to vote
for the election of such director, at a meeting of the stockholders called for
such purpose. Any vacancy in the office of a director entitled to be elected by
holders of shares of Series B Convertible Preferred Stock may be filled (i) by
any instrument in writing signed by the remaining directors elected by the
holders of shares of Series B Convertible Preferred Stock and filed with the
Corporation or (ii) in the case of the removal of any such director, by the vote
of the holders of a majority of the outstanding shares of Series B Convertible
Preferred Stock who are at that time entitled to vote for the election of such
director at the same meeting at which such removal shall be voted.
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Whenever the voting rights of holders of the shares of Series B
Convertible Preferred Stock shall cease as provided in this subparagraph (2) of
paragraph (h), the term of office of all persons who are at the time directors
of the Corporation shall terminate upon the election of their successors by the
holders of shares of Series B Convertible Preferred Stock (pursuant to
subparagraph (a) of this Section 8 and Common Shares.
9. Status of Reacquired Shares. All shares of Preferred Stock of the
Corporation which have been redeemed or reacquired in any manner by the
Corporation after the original issuance thereof shall have the status of
authorized and unissued shares of the class of preferred stock issuable in
series, undesignated as to series, and may be redesignated and reissued, but may
not be reissued as shares of Series A Redeemable Preferred Stock or Series B
Convertible Preferred Stock. The Board of Directors is authorized to divide such
reacquired shares of preferred stock into such number of series as the Board of
Directors may determine. The Board of Directors is authorized to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of preferred stock. and to fix the number of
shares of any series of preferred stock, and to determine the designation of any
series of preferred stock.
10. Reports to Stockholders. The Corporation shall distribute copies
of its annual reports and quarterly reports which it may be required to file
with the Securities and Exchange Commission ("SEC") to holders of shares of
Preferred Stock. In addition, so long as the Corporation is not required to file
copies of its annual reports and quarterly reports with the SEC, the Corporation
shall mail to each holder of shares of Preferred Stock, at the address of such
holder appearing on the books of the Corporation, its monthly, quarterly and
annual financial statements and management reports, within 10 days after such
statements and reports are completed, and any other financial statements or
reports which the Corporation is then providing to any of its lenders,
including, without limitation, Southern California Bank, at the same time as
such statements and reports are provided to such lenders.
V.
The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
VI.
The Corporation is authorized to provide indemnification of agents
(as defined in Section 145 of the Delaware General Corporation Law) in excess of
the indemnification otherwise permitted by Section 145 of the Delaware General
Corporation Law for breach of duty to the Corporation and its stockholders
through bylaw provisions or through agreements with the agents, or both subject
to the limits on such excess indemnification set forth in Section 145 of the
Delaware General Corporation Law.
FIVE: The foregoing amendment and restatement has been approved by
the Board of Directors of the Corporation.
SIX: The foregoing amendment and restatement has been approved by the
required vote of the stockholders of the Corporation in accordance with Section
242 of the Delaware General Corporation Law; the total number of outstanding
shares of the corporation is 1,875,184 shares of Common Stock, 4,000 of Series A
Preferred Stock and 14,000 of Series B Preferred Stock. The number of shares
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50% of the Common Stock, more than 50% of
the Preferred Stock, more than 50% of the Series A Preferred and more than 50%
of the Series B Preferred.
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IN WITNESS WHEREOF, the undersigned have executed this
Certificate on May __, 1999.
------------------------------------
Stephen K. Schultheis, President
------------------------------------
Suzanne M. David, Secretary
The undersigned, Stephen K. Schultheis and Suzanne M. David, the
President and Secretary, respectively, of Ansys Diagnostics, Inc., each declares
under penalty of perjury that the matters set out in the foregoing Amended and
Restated Certificate of Incorporation are true of his/her own knowledge.
Executed at Lake Forest, California, on May __, 1999.
------------------------------------
Stephen K. Schultheis, President
------------------------------------
Suzanne M. David, Secretary
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EXHIBIT 3.2
BYLAWS
OF
ANSYS DIAGNOSTICS, INC.,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be at the
office of National Registered Agents, Inc., 9 East Loockerman Street in the City
of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated on an annual basis by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof. Any other proper business may be transacted
at the annual meeting.
Section 2. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 3. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, or cause a third party to prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 4. Special Meetings. Special meetings of the stockholders of
this corporation, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, shall be called by the President
or Secretary at the request in writing of a majority of the members of the Board
of Directors or holders of not less than 10% of the outstanding shares of
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stock of this corporation then entitled to vote, and may not be called absent
such a request. Such request shall state the purpose or purposes of the proposed
meeting.
Section 5. Notice of Special Meetings. As soon as reasonably practicable
after receipt of a request as provided in Section 4 of this Article II, written
notice of a special meeting, stating the place, date (which shall be not less
than ten nor more than sixty days from the date of the notice) and hour of the
special meeting and the purpose or purposes for which the special meeting is
called, shall be given to each stockholder entitled to vote at such special
meeting.
Section 6. Scope of Business at Special Meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the chairman of the meeting or
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting as provided in Section 5 of this Article
II.
Section 8. Qualifications to Vote. The stockholders of record on the
books of the corporation at the close of business on the record date as
determined by the Board of Directors and only such stockholders shall be
entitled to vote at any meeting of stockholders or any adjournment thereof.
Section 9. Record Date. The Board of Directors may fix a record date for
the determination of the stockholders entitled to notice of or to vote at any
stockholders' meeting and at any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action. The record date shall not be more
than sixty nor less than ten days before the date of such meeting, and not more
than sixty days prior to any other action. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 10. Action at Meetings. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy
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shall decide any question brought before such meeting, unless the question is
one upon which by express provision of applicable law or of the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 11. Voting and Proxies. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. Each proxy shall be revocable unless expressly provided therein
to be irrevocable and unless it is coupled with an interest sufficient in law to
support an irrevocable power.
Section 12. Action by Stockholders Without a Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in Delaware
(by hand or by certified or registered mail, return receipt requested), to its
principal place of business, or to an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded; provided, however, that action by written consent to elect directors,
if less than unanimous, shall be in lieu of holding an annual meeting only if
all the directorships to which directors could be elected at an annual meeting
held at the effective time of such action are vacant and are filled by such
action. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing and who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting if the record date
for such meeting had been the date that written consents signed by a sufficient
number of stockholders to take the action were delivered to the corporation by
delivery to its registered office in Delaware (by hand or by certified or
registered mail, return receipt requested), to its principal place of business,
or to an officer or agent of the corporation having custody of the book in which
proceedings or meetings of stockholders are recorded.
ARTICLE III
DIRECTORS
Section 1. Powers. The business of the corporation shall be managed by
or under the direction of its Board of Directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
applicable law or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
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Section 2. Number; Election; Tenure and Qualification. The number of
directors which shall constitute the whole board shall be fixed from time to
time by resolution of the Board of Directors or by the Stockholders at an annual
meeting of the Stockholders (unless the directors are elected by written consent
in lieu of an annual meeting as provided in Article II, Section 12); provided
that the number of directors shall be not less than five nor more than nine.
With the exception of the first Board of Directors, which shall be elected by
the incorporator, and except as provided in the corporation's Certificate of
Incorporation or in Section 3 of this Article III, the directors shall be
elected at the annual meeting of the stockholders by a plurality vote of the
shares represented in person or by proxy and each director elected shall hold
office until his successor is elected and qualified unless he shall resign,
become disqualified, disabled, or otherwise removed.
Directors need not be stockholders.
Section 3. Vacancies and Newly Created Directorships. Unless otherwise
provided in the Certificate of Incorporation, vacancies and newly-created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director. The directors so chosen shall serve
until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute. If,
at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of shares at the time outstanding having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 4. Location of Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. Meeting of Newly Elected Board of Directors. The first
meeting of each newly elected Board of Directors shall be held immediately
following the annual meeting of stockholders and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at such time, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors; provided that any director who is
absent when such a determination is made shall be given notice of such location.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the President on two days' notice to each director by mail,
overnight courier service or facsimile; special meetings shall be called by the
President or Secretary in a like manner and on like notice on the written
request of two directors unless the Board of Directors consists of only one
director, in
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which case special meetings shall be called by the President or Secretary in a
like manner and on like notice on the written request of the sole director.
Notice may be waived in accordance with Section 229 of the Delaware General
Corporation Law.
Section 8. Quorum and Action at Meetings. At all meetings of the Board
of Directors, a majority of the directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Action Without a Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 10. Telephonic Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Section 12. Committee Authority. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to (a) approving,
adopting or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval, or (b) adopting, amending or repealing any Bylaw of the
corporation. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
Section 13. Committee Minutes. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when required to
do so by the Board of Directors.
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Section 14. Directors Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 15. Resignation. Any director or officer of the corporation may
resign at any time. Each such resignation shall be made in writing and shall
take effect at the time specified therein, or, if no time is specified, at the
time of its receipt by either the Board of Directors, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective unless expressly so provided in the resignation.
Section 16. Removal. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws or applicable law, any director or the entire Board
of Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Notice to Directors and Stockholders. Whenever, under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the corporation that the notice
has been given shall in the absence of fraud, be prima facie evidence of the
facts stated therein. Notice to directors may also be given by telephone,
facsimile or telegram (with confirmation of receipt).
Section 2. Waiver. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. The written waiver need not specify the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at the meeting is not a waiver of
any right to object to the consideration of matters required by the Delaware
General Corporation Law to be included in the notice of the meeting but not so
included, if such objection is expressly made at the meeting.
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ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the Board of Directors and shall include a President, a Secretary, a
Treasurer or Chief Financial Officer and such other officers with such other
titles as the Board of Directors shall determine. The Board of Directors may
elect from among its members a Chairman or Chairmen of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more
Vice-Presidents, Assistant Secretaries and Assistant Treasurers. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.
Section 2. Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect a President, a Secretary, a
Treasurer and such other officers with such other titles as the Board of
Directors shall determine.
Section 3. Appointment of Other Agents. The Board of Directors may
appoint such other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
Section 4. Compensation. The salaries of all officers of the corporation
shall be fixed by the Board of Directors or a committee thereof. The salaries of
agents of the corporation, unless fixed by the Board of Directors, be fixed by
the President or any Vice-President of the corporation.
Section 5. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the directors of the Board of Directors. Any vacancy occurring in
any office of the corporation shall be filled by the Board of Directors.
Section 6. Chairman of the Board and Vice-Chairman of the Board. The
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which the Chairman shall be present. The
Chairman shall have and may exercise such powers as are, from time to time,
assigned to the Chairman by the Board of Directors and as may be provided by
law. In the absence of the Chairman of the Board, the Vice Chairman of the
Board, if any, shall preside at all meetings of the Board of Directors and of
the stockholders at which the Vice Chairman shall be present. The Vice Chairman
shall have and may exercise such powers as are, from time to time, assigned to
such person by the Board of Directors and as may be provided by law.
Section 7. President. The President shall be the Chief Executive Officer
of the corporation unless such title is assigned to another officer of the
corporation; in the absence of a Chairman and Vice Chairman of the Board, the
President shall preside as the chairman of meetings of the stockholders and the
Board of Directors; and the President shall have general and active management
of the business of the corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. The President or any Vice
President shall execute bonds,
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mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 8. Vice-President. In the absence of the President or in the
event of the President's inability or refusal to act, the Vice-President, if any
(or in the event there be more than one Vice-President, the Vice-Presidents in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting shall have all the powers of and be subject to
all the restrictions upon the President. The Vice-President shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision the Secretary shall
be subject. The Secretary shall have custody of the corporate seal of the
corporation and the Secretary, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by the Secretary's signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by such
officer's signature.
Section 10. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 11. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, President or Chief Executive Officer, taking
proper vouchers for such disbursements, and shall render to the President, Chief
Executive Officer and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all such transactions as
Treasurer and of the financial condition of the corporation. If required by the
Board of Directors, the Treasurer shall give the corporation a bond (which shall
be renewed every six years) in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of the Treasurer's office and for the restoration to the corporation,
in case of the Treasurer's death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in the possession or under the control of the Treasurer that belongs to the
corporation.
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Section 12. Assistant Treasurer. The Assistant Treasurer, or if there be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates. The shares of the corporation shall be
represented by a certificate, unless and until the Board of Directors adopts a
resolution permitting shares to be uncertificated. Certificates shall be signed
by, or in the name of the corporation by, (a) the Chairman of the Board, the
Vice-Chairman of the Board, the President or a Vice-President, and (b) the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by such stockholder in the corporation.
Certificates may be issued for partly paid shares and in such case upon the face
or back of the certificates issued to represent any such partly paid shares, the
total amount of the consideration to be paid therefor and the amount paid
thereon shall be specified.
Section 2. Class or Series. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the Delaware General
Corporation Law, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware Corporation Law
or a statement that the corporation will furnish without charge, to each
stockholder who so requests, the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 3. Signature. Any of or all of the signatures on a certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
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certificate is issued, it may be issued by the corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 5. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the corporation.
Section 6. Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the applicable provisions, if any, of the Certificate of
Incorporation, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property or
in shares of capital stock, subject to the provisions of the Certificate of
Incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the Board
of Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the Board of Directors shall think conducive to the interest of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
Section 2. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Seal. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 5. Loans. The Board of Directors of this corporation may,
without stockholder approval, authorize loans to, or guaranty obligations of, or
otherwise assist, including, without limitation, the adoption of employee
benefit plans under which loans and guarantees may be made, any officer or other
employee of the corporation or of its subsidiary, including any officer or
employee who is a director of the corporation or its subsidiary, whenever, in
the judgment of the Board of Directors, such loan, guaranty or assistance may
reasonably be expected to benefit the corporation. The loan, guaranty or other
assistance may be with or without interest, and may be unsecured, or secured in
such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation.
ARTICLE VIII
INDEMNIFICATION
Section 1. Scope. The corporation shall, to the fullest extent permitted
by Section 145 of the Delaware General Corporation Law, as that Section may be
amended and supplemented from time to time, indemnify any director, officer,
employee or agent of the corporation, against expenses (including attorneys'
fees), judgments, fines, amounts paid in settlement and/or other matters
referred to in or covered by that Section, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
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Section 2. Advancing Expenses. Expenses (including attorneys' fees)
incurred by a present or former director or officer of the corporation in
defending a civil, criminal, administrative or investigative action, suit or
proceeding by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation (or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized by
relevant provisions of the Delaware General Corporation Law; provided, however,
the corporation shall not be required to advance such expenses to a director (i)
who commences any action, suit or proceeding as a plaintiff unless such advance
is specifically approved by a majority of the Board of Directors, or (ii) who is
a party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors which alleges willful misappropriation
of corporate assets by such director, disclosure of confidential information in
violation of such director's fiduciary or contractual obligations to the
corporation, or any other willful and deliberate breach in bad faith of such
director's duty to the corporation or its stockholders.
Section 3. Liability Offset. The corporation's obligation to provide
indemnification under this Article VIII shall be offset to the extent the
indemnified party is indemnified by any other source including, but not limited
to, any applicable insurance coverage under a policy maintained by the
corporation, the indemnified party or any other person.
Section 4. Continuing Obligation. The provisions of this Article VIII
shall be deemed to be a contract between the corporation and each director of
the corporation who serves in such capacity at any time while this bylaw is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts.
Section 5. Nonexclusive. The indemnification and advancement of expenses
provided for in this Article VIII shall (i) not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement or
vote of stockholders or disinterested directors or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
such office, (ii) continue as to a person who has ceased to be a director and
(iii) inure to the benefit of the heirs, executors and administrators of such a
person.
Section 6. Other Persons. In addition to the indemnification rights of
directors, officers, employees, or agents of the corporation, the Board of
Directors in its discretion shall have the power on behalf of the corporation to
indemnify any other person made a party to any action, suit or proceeding who
the corporation may indemnify under Section 145 of the Delaware General
Corporation Law.
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Section 7. Definitions. The phrases and terms set forth in this Article
VIII shall be given the same meaning as the identical terms and phrases are
given in Section 145 of the Delaware General Corporation Law, as that Section
may be amended and supplemented from time to time.
ARTICLE IX
AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed, or new Bylaws may be adopted, by the
holders of a majority of the outstanding voting shares or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new Bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
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CERTIFICATE OF SECRETARY OF
ANSYS DIAGNOSTICS, INC.
(a Delaware corporation)
The undersigned certifies:
(1) That the undersigned is the duly elected and acting
Secretary of Ansys Diagnostics, Inc., a Delaware corporation (the
"Corporation"); and
(2) That the foregoing Bylaws constitute the Bylaws of the
Corporation as duly adopted by the Action by Unanimous Written Consent
in Lieu of the Organizational Meeting by the Board of Directors of Ansys
Diagnostics, Inc., dated the 8th day of March, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Corporation as of this 8th day of March, 1999.
/s/ Suzanne M. David
------------------------------
Suzanne M. David,
Secretary
<PAGE> 1
EXHIBIT 4.1
NUMBER ANSYS SHARES
AD- DIAGNOSTICS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
CUSIP 03662K 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.0001 OF,
ANSYS Diagnostics, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by Attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
/s/ SUZANNE M. DAVID ANSYS DIAGNOSTICS, INC. /s/ STEPHEN V. SCHULTHEIS
- ----------------------- SEAL -------------------------
SECRETARY OF DELAWARE PRESIDENT
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT
AND REGISTRAR,
By
--------------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
ANSYS Diagnostics, Inc.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .........Custodian...............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
UNIF TRF MIN ACT -- .........Custodian (until age)...)
(Cust)
...........under Uniform Transfers
(Minor)
to Minors Act.....................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within Corporation with
full power of substitution in the premises.
Dated
------------------------------------
X
---------------------------------
X
---------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
By
------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into this ___ day of _________, 1999, between ANSYS Diagnostics, Inc., a
Delaware corporation (the "Company"), and ____________________ ("Indemnitee").
A. Indemnitee, as an officer and/or a member of the Board of Directors
of the Company and performs valuable services for the Company;
B. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for corporate directors, officers, employees,
controlling persons, agents and fiduciaries, the significant increases in the
cost of such insurance and the general reductions in the coverage of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
controlling persons, agents and fiduciaries to expensive litigation risks at the
same time as the availability and coverage of liability insurance has been
severely limited.
D. The stockholders of the Company have adopted Bylaws (the "Bylaws")
providing for the indemnification of the officers, directors, agents and
employees of the Company to the maximum extent authorized by Section 145 of the
Delaware Corporations Code, as amended ("Code").
E. Indemnitee does not regard the current protection available for the
Company's directors, officers, employees, controlling persons, agents and
fiduciaries as adequate under the present circumstances, and Indemnitee and
other directors, officers, employees, controlling persons, agents and
fiduciaries of the Company may not be willing to serve or continue to serve in
such capacities without additional protection.
F. The Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Company and its directors, officers, employees,
controlling persons, agents or fiduciaries with respect to indemnification of
such directors.
G. The Company (i) desires to attract and retain the involvement of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to be involved with the Company, and (ii)
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
H. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, in consideration of Indemnitee's service as a director
and/or officer of the Company, the parties hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to indemnify
Indemnitee to the fullest extent permitted by law, even if such indemnification
is not specifically authorized
<PAGE> 2
by the other provisions of this Agreement, the Company's Certificate of
Incorporation (the "Certificate"), the Company's Bylaws or by statute. In the
event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, controlling person,
agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the
right of a Delaware corporation to indemnify a member of its Board of Directors
or an officer, employee, agent or fiduciary, such change, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
2. ADDITIONAL INDEMNITY. The Company hereby agrees to hold harmless and
indemnify the Indemnitee:
(a) against any and all expenses incurred by Indemnitee, as set
forth in Section 3(a) below; and
(b) otherwise to the fullest extent not prohibited by the
Certificate, the Bylaws or the Code.
3. INDEMNIFICATION RIGHTS.
(a) Indemnification of Expenses. The Company shall indemnify and
hold harmless Indemnitee, together with Indemnitee's partners, affiliates,
employees, agents and spouse and each person who controls any of them or who may
be liable within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "Securities Act"), or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to the fullest extent permitted by law if
Indemnitee was or is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
and the Company believe might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") against any and
all expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation, judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses,
incurred by Indemnitee by reason of (or arising in part out of) any event or
occurrence related to the fact that Indemnitee is or was a director, officer,
employee, controlling person, agent or fiduciary of the Company or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, controlling person,
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<PAGE> 3
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity including, without limitation, any and
all losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, which relate
directly or indirectly to the registration, purchase, sale or ownership of any
securities of the Company or to any fiduciary obligation owed with respect
thereto (hereinafter an "Indemnification Event"). Such payment of Expenses shall
be made by the Company as soon as practicable but in any event no later than
twenty-five (25) days after written demand by Indemnitee therefor is presented
to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 2 shall be subject to the condition
that the Reviewing Party (as described in Section 11(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel as defined in Section 11(d) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) and Indemnitee
acknowledges and agrees that the obligation of the Company to make an advance
payment of Expenses to Indemnitee pursuant to Section 4(a) (an "Expense
Advance") shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). Indemnitee's obligation to reimburse the Company for any Expense
Advance shall be unsecured and no interest shall be charged thereon. If there
has not been a Change in Control (as defined in Section 11(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 3(e) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Contribution. If the indemnification provided for in Section
3(a) above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the
3
<PAGE> 4
Company, in lieu of indemnifying Indemnitee thereunder, shall contribute to the
amount paid or payable by Indemnitee as a result of such losses, claims,
damages, expenses or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and Indemnitee, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and Indemnitee shall
be deemed to be in the same respective proportions that the net proceeds from
the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and Indemnitee shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or Indemnitee and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and Indemnitee agree that it would not be just and equitable
if contribution pursuant to this Section 3(c) were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In connection with the registration of the Company's securities, in
no event shall an Indemnitee be required to contribute any amount under this
Section 3(c) in excess of the lesser of (i) that proportion of the total of such
losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by Indemnitee or (ii) the proceeds received by Indemnitee from its
sale of securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
(d) Survival Regardless of Investigation. The indemnification and
contribution provided for herein will remain in full force and effect regardless
of any investigation made by or on behalf of Indemnitee or any officer,
director, employee, agent or controlling person of Indemnitee.
(e) Change in Control. After the date hereof, the Company agrees
that if there is a Change in Control of the Company (other than a Change in
Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control) then,
with respect to all matters thereafter arising concerning the rights of
Indemnitee to payments of Expenses under this Agreement or any other agreement
or under the Company's Certificate or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 11(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to abide by such opinion and to pay the reasonable fees of the
Independent Legal Counsel
4
<PAGE> 5
referred to above and to fully indemnify such counsel against any and all
reasonable expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto.
(f) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in the defense of any action, suit, proceeding,
inquiry or investigation referred to in Section 3(a) hereof or in the defense of
any claim, issue or matter therein, Indemnitee shall be indemnified against all
Expenses incurred by Indemnitee in connection herewith.
4. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than ten
(10) business days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the
Company notice in writing in accordance with Section 15 of this Agreement as
soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in each of the Company's policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
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<PAGE> 6
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel approved by the
Indemnitee (which approval shall not be unreasonably withheld) upon the delivery
to Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that (i) Indemnitee shall have the right to
employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's counsel shall be
at the expense of the Company.
5. NONEXCLUSIVITY. The indemnification provided by this Agreement shall
be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
7. PARTIAL INDEMNIFICATION. If any Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
8. MUTUAL ACKNOWLEDGEMENT. The Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling
persons, agents or fiduciaries under this Agreement or otherwise. Each
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's rights under public policy to
indemnify Indemnitee.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to any Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way
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<PAGE> 7
of defense, except (i) with respect to actions or proceedings to establish or
enforce a right to indemnify under this Agreement or any other agreement or
insurance policy or under the Company's Certificate of Incorporation or Bylaws
now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in
specific cases if the Board of Directors has approved the initiation or bringing
of such Claim, or (iii) as otherwise required under Section 145 of the Delaware
General Corporation Law, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be; or
(b) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Exchange Act or any similar
successor statute; or
(c) Claims Excluded Under Section 145 of the Delaware General
Corporation Law. To indemnify Indemnitee if (i) he did not act in good faith or
in a manner reasonably believed by such Indemnitee to be in or not opposed to
the best interests of the Company, or (ii) with respect to any criminal action
or proceeding, Indemnitee had reasonable cause to believe his conduct was
unlawful, or (iii) Indemnitee shall have been adjudged to be liable to the
Company unless and only to the extent the court in which such action was brought
shall permit indemnification as provided in Section 145(b) of the Delaware
General Corporation Law.
10. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of five years from the date of
accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such five-year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
11. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent, control person, or fiduciary of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee, control person, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on any Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or
7
<PAGE> 8
fiduciary with respect to an employee benefit plan, its participants or its
beneficiaries; and if any Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interests of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as referred
to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
(A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by 5% or more over the percentage so owned by such
person, or (B) becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Exchange Act), directly or indirectly, of securities of the Company
representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 3(d) hereof, who shall not have otherwise performed
services for the Company or any Indemnitee within the last three years (other
than with respect to matters concerning the right of any Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
8
<PAGE> 9
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
13. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether any Indemnitee continues to serve as a director, officer,
employee, agent, controlling person, or fiduciary of the Company or of any other
enterprise, including subsidiaries of the Company, at the Company's request.
14. ATTORNEYS' FEES. In the event that any action is instituted by an
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action if Indemnitee is ultimately successful in
such action, and shall be entitled to the advancement of Expenses with respect
to such action, unless, as a part of such action, a court of competent
jurisdiction over such action determines that the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in
defense of such action (including costs and expenses incurred with respect to
Indemnitee counterclaims and cross-claims made in such action), and shall be
entitled to the advancement of Expenses with respect to such action, unless, as
a part of such action, a court having jurisdiction over such action determines
that the Indemnitee's material defenses to such action were made in bad faith or
were frivolous.
15. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) calendar days after deposit with the
U.S. Postal Service or other applicable postal service, if delivered by first
class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one
business day after the business day of deposit with Federal Express or similar
overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission,
with copy by first class mail, postage prepaid, and shall be addressed if to
Indemnitee, at Indemnitee's address as set forth beneath Indemnitee's signature
to this Agreement and if to the Company at the address of its principal
corporate offices (attention: Chief Executive Officer) or at such other address
as such party may designate by ten (10) calendar days' advance written notice to
the other party hereto.
9
<PAGE> 10
16. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
19. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by all parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
21. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving the Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
23. CORPORATE AUTHORITY. The Board of Directors of the Company has
approved the terms of this Agreement.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY:
ANSYS DIAGNOSTICS,
a Delaware corporation
By:
--------------------------------
Stephen K. Schultheis.
President and Chief
Executive Officer
` Address: 25200 Commerce Center Drive
Lake Forest, CA 92630
INDEMNITEE:
------------------------------------
Signature
------------------------------------
Print Name
Address:
----------------------------
----------------------------
11
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
LETTER AGREEMENT
by and between
ANSYS DIAGNOSTICS, INC.
and
MOLECULAR INNOVATIONS, INC.
Dated September 24, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
EXHIBIT 10.15
September 24, 1998
Molecular Innovations, Inc.
717 Yosemite Circle
Denver, Colorado 80220
Attention: Jack Wheeler
Re: Development and Optimization of XtraAMP
and SCIP for [***]
Dear Jack:
This letter is intended to set forth the mutual understanding of ANSYS
Diagnostics, Inc. ("ANSYS"), and Molecular Innovations, inc. ("MII"), regarding
the development and optimization phase in producing the above-referenced devices
for commercial use and application.
MII and ANSYS shall collaborate in the development and optimization of [***]
and the automation of production processes for XtraAMP. Each party shall
undertake its development obligations hereunder at its sole cost and expense.
MII shall retain any patentable rights associated with each of XtraAMP and
[***] and ANSYS shall retain any patentable rights associated with manufacturing
processes developed by ANSYS.
MII's responsibilities in the development and optimization phase are:
1. To provide such information regarding methods, reagent volumes,
sequences and other use requirements as may be requested by ANSYS or as
may be relevant to the development and optimization of the devices.
2. To provide such technical personnel as may be necessary to conduct
feasibility tests of the products and deliver results to ANSYS in a
timely manner.
3. To provide reagents and any other MII proprietary components and
materials as are necessary to produce the devices.
ANSYS' obligations hereunder are:
1. To provide design and engineering support for development of [***].
2. To provide design and engineering support to develop and implement the
XtraAMP manufacturing process.
[***] Confidential treatment has been requested for the redacted portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE> 3
3. To assign a project manager to supervise the development and
optimization phase for [***] and to supervise the development of the
XtraAMP manufacturing process.
4. To procure all necessary capital and other equipment to develop the
XtraAMP manufacturing process, which equipment shall at all times remain
the property of ANSYS.
The parties contemplate and agree that upon completion of the development and
optimization phase hereunder to the mutual satisfaction of each of MII and
ANSYS, the parties shall negotiate and agree upon final product specifications
and pricing for the XtraAMP sample preparation product and for the [***] test.
As consideration for the performance by ANSYS in connection with the performance
of its obligations hereunder, and as a material inducement for ANSYS' agreements
hereunder, MII further agrees to designate and appoint ANSYS as its exclusive
manufacturer on a worldwide basis for each of XtraAMP and [***], as its
non-exclusive distributor of [***] and XtraAMP in all markets in which MII has
distribution rights, and as its exclusive distributor of XtraAMP in the [***]
markets, all for a term not less than five (5) years from the launch date of
each of the respective products.
Upon completion of the development and optimization phase for [***] and/or
XtraAMP, as the case may be, MII and ANSYS agree to enter into one or more
definitive agreements incorporating the product specifications, pricing,
manufacturing rights and distribution rights contemplated hereby.
If the foregoing accurately sets forth our understanding regarding the matter,
please indicate by signing a counterpart of this letter and returning it to me
at your earliest convenience.
Very truly yours,
/s/ Stephen K. Schultheis AGREED AND ACCEPTED:
Stephen K. Schultheis MOLECULAR INNOVATIONS, Inc.
President/CEO
By: Jack Wheeler
President
/s/ Jack Wheeler
----------------------
[***] Confidential treatment has been requested for the redacted portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
2
<PAGE> 1
EXHIBIT 10.16
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO MOLECULAR INNOVATIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED. THIS NOTE IS ALSO SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER SET FORTH IN A NOTE PURCHASE AGREEMENT BETWEEN MOLECULAR
INNOVATIONS, INC. AND HOLDER.
CONVERTIBLE NOTE
Principal: $300,000 February 5, 1999
Boulder, Colorado
FOR VALUE RECEIVED the undersigned, Molecular Innovations, Inc., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
Ansys Diagnostics, Inc., a California corporation ("Holder"), at 25200 Commerce
Centre Drive, Lake Forest, California 92630 the principal sum of Three Hundred
Thousand Dollars ($300,000), or such lesser amount as may be outstanding
hereunder, with interest at the rate of nine percent (9%) per annum, compounded
annually. The principal amount and accrued interest on this Note shall be
payable as set forth in the Note Purchase Agreement, as hereinafter defined.
The undersigned further promises to pay interest on the unpaid principal
amount of this Note from the date hereof until this Note is paid in full,
payable at the rates and at the times set forth in the Note Purchase Agreement.
Payments of both principal and interest are to be made in lawful money of the
United States of America.
This Note evidences indebtedness incurred under, and is subject to the
terms and provisions of, the Convertible Note Purchase Agreement dated as of the
date hereof (herein, as amended or otherwise modified from time to time, called
the "Note Purchase Agreement"), between the Company and Holder, to which Note
Purchase Agreement reference is hereby made for a statement of the terms and
provisions under which this Note may or must be paid prior to its due date or
its due date accelerated.
The entire unpaid principal amount of this Note (to the extent not
prepaid or converted in accordance with the Note Purchase Agreement) together
with any and all accrued but unpaid interest, shall be due and payable on July
31, 2000.
As provided in the Note Purchase Agreement, this Note or any portion of
the unpaid principal amount hereof, together with unpaid interest accrued
thereon may at the time specified and upon the conditions set forth in the Note
Purchase Agreement, be converted into fully paid and nonassessable shares of
capital stock of the Company at the price specified in the Note Purchase
Agreement.
<PAGE> 2
Upon the occurrence of an Event of Default, as defined in the Note
Purchase Agreement, the principal of this Note may be declared due and payable
in the manner and with the effect provided in the Note Purchase Agreement.
Whenever Holder shall sustain or incur any losses or out-of-pocket
expenses with respect to this Note in connection with (a) repayment of overdue
amounts under this Note or (b) failure by the Company to pay all principal and
interest, if any, of this Note when due hereunder (whether at maturity, by
reason of acceleration, or otherwise), the Company shall pay, on demand, to
Holder, in addition to any other penalties or premiums hereunder, an amount
sufficient to compensate Holder for all such losses or out-of-pocket expenses,
including, without limitation, all costs and expenses of a suit or proceeding
(or any appeal thereof) brought for recovery of all or any part of or for
protection of the indebtedness evidenced by this Note or to enforce Holder's
rights hereunder, including reasonable attorney's fees.
The remedies provided in this Note and the Note Purchase Agreement shall
be cumulative, and shall be in addition to any other rights or remedies now or
hereafter provided by law or equity. No delay, failure or omission by Holder or
any holder of this Note, in respect of any default by the Company, to exercise
any right or remedy shall constitute a waiver of the right to exercise the right
or remedy upon any such default or subsequent default.
The Company's obligations under this Note shall be paid and performed by
the Company without any defense, claims, setoffs, counterclaims, recoupments,
reductions, limitations, impairments or terminations which the Company may now
have or hereafter has or could have against Holder, and the Company hereby
waives all of the same. The Company hereby waives the benefit or all laws now or
hereafter enacting affording any right to any appraisement, any stay of
execution or extension of time for payment. Except as set forth herein, notice
of demand, presentation for payment, notice of nonpayment or dishonor, protest
and notice of protest are hereby waived by the Company. The Company agrees that
the granting, without notice of any extensions or extensions of time for payment
of any sum or sums due hereunder, or for the performance of any covenant,
condition or agreement contained herein, or the granting of any other
indulgences to the Company, or any another modifications or amendment of this
Note, or the acceptance, release or substitution by Holder of any security,
shall in no way release or discharge the liability of the Company.
Anything in this Note to the contrary notwithstanding, no provision of
this Note, whether operating individually or in conjunction with any applicable
provisions of the Note Purchase Agreement shall require the payment or permit
the collection of interest in excess of the highest rate permitted by applicable
law, and any portion of the interest otherwise payable under this Note, whether
operating individually or in conjunction with any applicable provisions of the
Note Purchase Agreement, which is in excess of the highest rate permitted by
applicable law shall be cancelled automatically or (if heretofore paid) shall,
at the option of the Company, be either refunded to the Company or credited to
the Principal Amount of this Note.
2
<PAGE> 3
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
If any of the provisions of this Note or the Note Purchase Agreement
shall be held to be invalid or unenforceable, the determination of invalidity or
unenforceability of any such provision shall not affect the validity or
enforceability of any other provision or provisions hereof.
This Note shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of and be enforceable by Holder and its
successors and assigns.
All notices to the Company expressly required in this Note shall be
given in accordance with the terms of the Note Purchase Agreement.
At the option of Holder, an action may be brought to enforce this Note
in the District Court in and for the City and County of Boulder, State of
Colorado, or in any other court in which venue and jurisdiction are proper. The
Company and all signers or endorsers hereof consent to such venue and
jurisdiction and to service of process under Colorado Revised Statutes (1973)
Sections 13-1-124(l)(a) and 13-1-125, in any action commenced to enforce this
Note.
This Note shall be construed and enforced in accordance with the laws of
the State of Colorado.
MOLECULAR INNOVATIONS, INC.,
a Delaware corporation
By: /s/ Jack Wheeler
----------------------------
Name: Jack Wheeler
----------------------------
Title: President & CEO
----------------------------
3
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
CONVERTIBLE NOTE PURCHASE AGREEMENT
by and between
ANSYS DIAGNOSTICS, INC.
and
MOLECULAR INNOVATIONS, INC.
Dated February 5, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
EXHIBIT 10.17
CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (this "Agreement") dated as of
February 5, 1999, is between Molecular Innovations, Inc. (the "Company"), a
Delaware corporation with principal offices at 717 Yosemite Circle, Denver,
Colorado 80220, and Ansys Diagnostics, Inc. ("Holder"), a California corporation
with principal offices at 25200 Commerce Centre Drive, Lake Forest, California
92630.
Recitals
A. The Company wishes to sell up to $788,640 principal amount of its 9%
Convertible Notes due July 31, 2000 to Holder (the "Convertible Note").
B. Holder wishes to purchase $300,000 principal amount of the
Convertible Notes (the "Note"), on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the meanings indicated whenever used
herein:
Charter Documents shall mean the Certificate of Incorporation, all
Certificates of Designation, the By-laws of the Company and all other governing
documents, together with all amendments to any of the foregoing.
Common Stock shall mean (i) the common stock of the Company, $.01 par
value per share; (ii) any other capital stock of the Company into which such
common stock is converted, exchanged, reclassified or reconstituted; (iii) any
warrants or options exercisable for any of the foregoing; and (iv) any right to
receive any of the foregoing other than upon conversion of any security
convertible into any of the foregoing.
Company shall mean Molecular Innovations, Inc., a Delaware corporation.
Holder shall mean Ansys Diagnostics, Inc. The Term "Holder" shall also
include any and all successors of Holder and any endorsees, transferees, and
assigns of the Note.
Preferred Stock means any series of preferred stock of the Company,
including, without limitation, the Series A Preferred Stock, the Series B
Preferred Stock, and the Series C Preferred Stock currently authorized by the
Charter Documents and the new series of Preferred Stock to be authorized and
issued in connection with the Next Equity Round and upon conversion hereof.
1
<PAGE> 3
Secretary of State shall mean the Secretary of the State of Delaware.
Securities Act shall mean the Securities Act of 1933 and the rules and
regulations promulgated thereunder, as amended.
SEC shall mean the United States Securities and Exchange Commission.
Series A Preferred Stock shall mean the Series A Preferred Stock, $.01
par value per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted or any securities
convertible into, or exchangeable or exercisable for, any of the foregoing, in
each case, at any time outstanding.
Series B Preferred Stock shall mean the Series B Preferred Stock, $.0l
par value per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted or any securities
convertible into, or exchangeable or exercisable for, any of the foregoing, in
each case, at any time outstanding.
Series C Preferred Stock shall mean the Series C Preferred Stock, $.01
par value per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted or any securities
convertible into, or exchangeable or exercisable for, any of the foregoing, in
each case, at any time outstanding.
Subsidiary or Subsidiaries shall mean any corporation or other entity, a
majority of the voting power of which is, at the time as of which any
determination is being made, held by the Company either directly or through one
or more subsidiaries.
Other Defined Terms. The following terms shall have the meanings
specified in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Closing Date 2.02
Conversion Rate 7.01
Conversion Shares 7.01
Events of Default 8.01
Financial Statements 4.05
Holder's Designee 3.06
Investors Rights Agreement 3.06
Next Equity Round 7.01
Maturity Date 2.06
Proprietary Information 6.08
</TABLE>
2
<PAGE> 4
ARTICLE II
THE NOTE
Section 2.01. Execution and Delivery of the Note. Subject to the terms
and conditions of this Agreement, on the Closing Date, the Holder shall purchase
and pay for the Note, and the Company shall execute and deliver to Holder the
Note substantially in the form attached hereto as Exhibit A. The Note shall
incorporate the terms of this Agreement and shall be dated the Closing Date.
Section 2.02. Closing Date. Subject to the satisfaction or waiver of the
conditions specified in Article III, below, the closing of the sale and purchase
of the Note shall take place at the offices of Holme Roberts & Owen LLC, 1401
Pearl Street, Suite 400, Boulder, Colorado, at 10:00 a.m. on February 5, 1999,
or at such other place, date and time as may be mutually agreed upon by the
Holder and the Company (such date and time of closing being herein called the
"Closing Date").
Section 2.03. Material Terms of Note. The Note shall be substantially in
the form attached hereto as Exhibit A and shall include and incorporate the
following terms and conditions:
(a) Principal Amount. The purchase price, principal amount and
face amount of the Note shall be $300,000.
(b) Interest. The Company hereby promises to pay interest on the
unpaid principal amount of the Note for the period commencing on the date of the
Note until such Note is paid in full at nine percent (9%) per annum, compounded
annually. During the first 12 months of the term of the Note, interest shall
accrue but not be payable other than upon the occurrence of an Event of Default.
Thereafter, accrued interest on the Note for each month shall be payable on the
last day of the month. Interest accrued during the first 12 months of the term
of the Note; together with accrued interest on such amount, shall be paid in
equal quarterly installments over the remaining term of the Note. Interest shall
be computed for the actual number of days elapsed on the basis of a 365-day
year.
(c) Maturity Date. The entire outstanding principal amount of the
Note (if not converted), together with all accrued but unpaid interest thereon,
shall be due and payable on July 31, 2000 (the "Maturity Date"). All payments of
principal of, or interest on, the Note shall be made by the Company to Holder at
the address set forth on the Note.
(d) Prepayment. The principal indebtedness represented by the
Note may not be prepaid in whole or in part, without the prior written consent
of Holder, except as otherwise specifically provided in this Agreement.
(e) Acceleration. Upon the occurrence of an Event of Default, as
defined in Article VII, below, Holder may, but shall not be obligated to
accelerate the Note and all
3
<PAGE> 5
principal, accrued but unpaid interest and other amounts due under the Note
shall become immediately due and payable upon delivery of notice of such
acceleration to the Company.
ARTICLE III
CONDITIONS TO THE OBLIGATIONS OF HOLDER
The obligation of Holder to purchase and pay for the Note is subject to
the satisfaction, on or before the Closing Date, of the following conditions:
Section 3.01. Approval and Delivery of Note. On or prior to the Closing
Date, the Board of Directors of the Company shall have approved the execution,
delivery and performance of this Agreement, the Note and the transactions
contemplated hereby in accordance with the provisions of all applicable laws and
regulations, the Company's Charter Documents and the terms of all material
contracts and agreements to which the Company or its stockholders are parties
and Holder shall have received the Note duly executed and delivered by the
Company payable to the order of Holder.
Section 3.02 Representations and Warranties. The representations and
warranties contained in Article IV hereof shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date.
Section 3.03. Event of Default. No Event of Default or event which with
the passing of time or giving of notice would constitute an Event of Default
shall have occurred and be continuing or will result from the purchase of the
Note or the subsequent conversion thereof or the Company's performance of its
obligations hereunder or thereunder.
Section 3.04. Opinion of the Company's Counsel. Holder shall have
received from Holme Roberts & Owen LLP, counsel for the Company, an opinion,
dated the Closing Date, in form and substance reasonably satisfactory to Holder
and its counsel regarding, among other things, good standing, corporate
authority, due authorization and execution, capital structure and exemption from
registration requirements.
Section 3.05. Supporting Documents. On or prior to the Closing Date,
Holder and its counsel shall have received copies of all supporting documents
and other information with respect to the Company as Holder or its counsel may
reasonably request, including, without limitation, certified copies of the
Charter Documents, together with any and all amendments thereto, and a certified
copy of resolutions adopted by the Board of Directors the Company authorizing
the transactions contemplated by this Agreement.
Section 3.06. Board of Directors. On or before the Closing Date, but
conditioned upon the purchase by Ansys Diagnostics, Inc. of $300,000 principal
amount of the Convertible Notes, the Board of Directors of the Company shall
have taken all action necessary to expand the number of members of the Company's
Board of Directors to six and to elect Stephen K.
4
<PAGE> 6
Schultheis as a representative of Holder to the Board of Directors of the
Company (the "Holder's Designee") for a term of one year. In addition, at the
Closing, Ansys Diagnostics, Inc. and [***] (the "Key Stockholders") shall
execute a voting agreement (the "Voting Agreement") under which the parties
agree that, at any annual meeting of stockholders held for the purpose of
electing directors held after the Closing Date and before the second anniversary
of the Closing Date, the Key Stockholders shall vote all of the shares of the
Company's voting stock for Stephen K. Schultheis (or, if he is no longer
employed by Ansys Diagnostics, Inc., another person designated by Ansys
Diagnostics, Inc. and acceptable to the Company) as a candidate for the Board of
Directors. The voting agreement shall expire on the first to occur of (i) the
second anniversary of the Closing Date, (ii) the date upon which the percentage
of the Company's outstanding voting securities (based on convertibility to
common stock) held by Ansys Diagnostics, Inc. is less than 2.5%; and (iii) the
closing of an initial public offering resulting in net proceeds to the Company
of at least $15,000,000. The Holder's Designee shall not be the same person as
the designee of the Investors and Series C Preferred Stockholders contemplated
by that certain Investors Rights Agreement, executed by the Company and certain
of its stockholders as of July 10, 1998 (the "Investors Rights Agreement"). The
net result of this provision is that the Investors and Series C Preferred
stockholders, voting as a group, shall designate one director pursuant to the
terms of the Investors Rights Agreement and the Holder shall designate another
director pursuant to the terms of the Voting Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Holder as follows:
Section 4.01. Due Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to carry on the business of
the Company as now conducted and as proposed to be conducted.
Section 4.02. Good Standing. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
the Company or its business or properties.
Section 4.03. Authorization, Enforceability. The execution, delivery and
performance of this Agreement, the Note and the transactions contemplated hereby
and the election of Holder's Designee to the Board of Directors of the Company
have been, or prior to the Closing Date will have been, duly approved by the
Board of Directors of the Company and all other actions required to authorize
and effect the sale of the Note and (except for actions needed to authorize and
effect the Next Equity Round), the transactions contemplated hereby have been or
will have been duly taken and approved. This Agreement constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights
generally, (b) as limited by laws relating to the availability of specific
performance,
[***] Confidential treatment has been requested for the redacted portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
5
<PAGE> 7
injunctive relief or other equitable remedies and (c) that rights to
indemnification and contribution may be limited by federal or state securities
laws, rules or regulations or the policies underlying such laws, rules or
regulations.
Section 4.04. Capital Structure. Immediately prior to the Closing Date,
the authorized capital stock of the Company shall consist of 200,000 shares of
Common Stock, $.01 par value, and 100,000 shares of Preferred Stock, $.01 par
value, of which 20,000 shares shall be designated as Series A Preferred Stock,
23,000 shares shall be designated as Series B Preferred Stock, and 3,000 shares
shall be designated as Series C Preferred Stock. Immediately prior to the
Closing Date, [***] shares of Common Stock, [***] shares of Series A Preferred
Stock, [***] shares of Series B Preferred Stock, [***] shares of Series C
Preferred Stock shall be issued and outstanding. All of the issued and
outstanding shares of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. Except as expressly set forth on Schedule
4.04 hereto or in this Section 4.04, there are no outstanding options, warrants,
rights (including conversion or preemptive rights or rights of first refusal) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. Except for the rights of holders of the Series B Preferred Stock
to purchase the Convertible Notes (which purchases could result in the issuance
of up to $788,640 in principal amount of the Convertible Notes), and except as
expressly set forth on Schedule 4.04 or as contemplated hereby, the Company is
not a party or subject to any agreement or understanding, and, to the Company's
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director or stockholder of the Company.
Section 4.05. Financial Statements. The Company has attached as Exhibit
B its unaudited balance sheet and unaudited statements of operations,
stockholders' equity and cash flows presenting the financial position of the
Company at December 31, 1998 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied, fairly present the financial condition and
results of operations of the Company at and for the periods indicated, and to
the knowledge of the Company and except as disclosed on Schedule 4.05, do not
omit any material liabilities, contingent or other, of the Company that are
required to be included therein in accordance with generally accepted accounting
principles. Except as disclosed in the Financial Statements, the Company is not
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
Section 4.06. Absence of Changes. Since December 31, 1998, except as
otherwise set forth herein or on Schedule 4.06 hereto, there has not been:
(a) any material change in the assets, liabilities, financial
condition or operating results of the Company from those reflected in the
Financial Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse;
[***] Confidential treatment has been requested for the redacted portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
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(b) any material damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results or business of the Company;
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company;
(e) any change or amendment to a material contract or arrangement
by which the Company or any of its assets or properties is bound or to which the
Company or any of such assets or properties is subject;
(f) to the Company's knowledge, any other event or condition of
any character that could reasonably be expected to materially and adversely
affect the assets, properties, financial condition, operating results or
business of the Company;
(g) any material sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other tangible or intangible assets;
(h) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except purchase money security interests, or leases, and except liens
for taxes not yet due or payable;
(i) any unpaid loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; or
(j) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company.
Section 4.07. No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of any of the transactions
contemplated hereby (including the Sale of the Convertible Notes and the
Conversion thereof, but excluding authorization of the Next Equity Round and
related matters) nor the election of Holder's Designee to the Company's Board of
Directors (a) will result in any violation of the Company's Charter Documents or
any agreements between or among the stockholders of the Company; (b) will
violate or conflict with or result in a default under any contract or agreement
or any provision of any contract or agreement or other restriction of any kind
to which the Company is a party or by which it is bound or to which its
properties or assets are subject, other than violations or conflicts which in
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<PAGE> 9
the aggregate do not and will not materially and adversely affect the property,
financial condition or business of the Company; (c) will cause any acceleration
of maturity of any obligation or loan to which the Company is a party or by
which it is bound or with respect to which it is an obligor or guarantor; (d)
will result in the creation or imposition of any lien, claim, charge,
restriction or encumbrance of any kind whatever (other than in favor of Holder)
upon or give to any other person any interest or right (including any right of
termination or cancellation) in or with respect to any of the material
properties, assets, business, agreements or contracts of the Company; or (e) to
the knowledge of the Company will conflict with or constitute a violation of any
provision of local, state, federal or foreign law, rule or regulation.
Section 4.08. Compliance with Laws. The Company has complied with and is
in compliance in all material respects with all federal, state and local
statutes, laws, ordinances, regulations, rules, judgments, orders and decrees
applicable to it and its assets, business and operations. There does not exist
any valid basis for any claim of default under or violation of any statute, law,
ordinance, regulation, rule, judgment, order or decree except such bases for any
such claim of default or violation, if any, which in the aggregate do not and
will not materially and adversely affect the property, operations, financial
condition or prospects of the Company.
Section 4.09. Affirmation of Series B Preferred Stock Purchase
Representations and Warranties. All representations and warranties of the
Company contained in that certain Series B Preferred Stock Purchase Agreement
dated July 10, 1998 are, except as otherwise disclosed on Schedule 4.09 hereto,
or in the Financial Statements, true and correct.
Section 4.10. Information. No written material provided by the Company
to Holder or its accountants, consultants, counsel or other advisors in
connection with the transactions contemplated herein, as of their respective
dates contained, nor does this Agreement contain, any untrue statement of a
material fact or omit to state a material fact necessary to make information
contained therein or herein not misleading.
Section 4.11. Offering of the Note. Neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Note or any similar security of the
Company has offered the Note or any similar security of the Company for sale to,
or solicited any offers to buy the Note or any similar security of the Company
from, or otherwise approached or negotiated with respect thereto with, any
person or persons other than Holder and existing stockholders of the Company;
and neither the Company nor any person acting on its behalf has taken or will
take any action (including, without limitation, any offer, issuance or sale of
any security of the Company under circumstances which might require the
integration of such security with the Note under the Securities Act) which might
subject the offering, issuance or sale of the Note to the registration
provisions of the Securities Act.
Section 4.12 Election of Holder's Designee. Effective as of the Closing
Date, Holder's Designee will be duly elected as a member of the Board of
Directors in accordance with the provisions of the Company's Charter Documents.
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<PAGE> 10
Section 4.13 Year 2000 Readiness. The Company has conducted as
assessment of the risk that the material products, services and processes of the
Company are subject to risk of disruption or interruption by items that are not
"Y2K Compliant" (defined as items that were designed, manufactured, written,
sold, licensed, sublicensed, installed, provided and/or maintained with
microchips, codes, and/or other devices using four digit or other year 2000
compliant date fields). The Company is not aware of any material product,
service or process of the Company that is currently dependent on items owned or
controlled by the Company that are not Y2K Compliant.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to the Company that Holder is acquiring
the Note being purchased by it hereunder, and will, upon conversion thereof,
acquire the Conversion Shares, for its own account for the purpose of investment
and not with a view to or for sale in connection with any distribution thereof.
Holder further represents that it understands that:
(a) neither the Note nor the Conversion Shares have been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof;
(b) the Note, and, upon conversion thereof, the Conversion
Shares, must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration;
(c) the Note and the Conversion Shares will bear a legend to such
effect; and
(d) the Company will make a notation on its transfer books to
such effect.
Holder further understands (i) that the exemption from registration afforded by
Rule 144 under the Securities Act depends upon the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis of sale of the
Note and/or the Conversion Shares in limited amounts under certain conditions,
and (ii) except as expressly provided in the Registration Rights Agreement, the
Company makes no representation or agreements as to the availability of Rule
144.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with Holder that so long as any amount
is outstanding under the Note held by Holder, unless Holder shall otherwise
consent in writing, the Company will:
Section 6.01. Financial Statements, Reports. Furnish to Holder the
following:
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(a) within 90 days after the end of each fiscal year of the
Company, an audited balance sheet of the Company as of the end of such fiscal
year and the related statement of income, changes in shareholders' equity and
changes in financial position of the Company for the fiscal year then ended,
together with supporting notes thereto;
(b) within 30 days after the end of each calendar quarter in each
fiscal year (other than the last calendar quarter in each fiscal year), similar
financial statements to those referred to in paragraph (a) above unaudited but
certified by the principal financial officer of the' Company, such balance sheet
to be as of the end of such quarter and such statements of income, changes in
shareholders' equity and changes in financial position to be for the period from
the beginning of the fiscal year to the end of such calendar quarter, in each
case subject to audit adjustments;
(c) within 30 days after the end of each fiscal year of the
Company, an annual business plan, including a budget and detailed financial
projections and cash flow projections for each month during such year, all in
reasonable detail together with underlying assumptions and including a detailed
operating plan for the year;
(d) at the same time as sent to stockholders, a copy of all
financial statements, reports, notices and proxy statements sent by the Company
to its stockholders;
(e) promptly upon filing, copies of all registration statements,
prospectuses, periodic reports and other documents filed by the Company with the
SEC or any other governmental department, bureau, commission or agency;
(f) promptly upon receipt thereof, copies of all other reports,
if any, submitted to the Company by independent public accountants in connection
with any annual or interim audit of the Company's books and records; and
(g) promptly upon the occurrence thereof, notice of any (i) event
which has had, or could have, a material adverse impact on the assets, business,
prospects, condition, affairs or operations of the Company, the Company's
ability to perform its obligations hereunder or under the Note or the Company's
ability to consummate the Next Equity Round as contemplated hereby, (ii) the
institution or threat of any material litigation or investigation or material
disputes with customers, or (iii) the occurrence of any Event of Default or
event which with the passage of time would constitute an Event of Default.
The obligations of the Company under this Section 6.01 shall terminate
upon conversion of the Note pursuant to Section 7.01.
Section 6.02. Negative Covenants. The Company shall not take any of the
actions subject to this Section 6.02 without the prior written consent of
Holders owning at least a majority of the principal amount of the Convertible
Notes then outstanding; provided, that in the case of paragraphs (b), (g) and
(h), a Holder shall not unreasonably withhold consent, and provided further,
that in the case of paragraphs (a), (c), (d), (e) and (f), if any Holder refuses
to
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<PAGE> 12
give consent, the Company may elect to take the action for which consent was
requested on the condition that the Company prepay the Holder's Note, and
subject to such prepayment, that Holder's Note shall not be taken into account
in determining whether consent has been obtained. The actions subject to this
Section 6.02 include and are limited to any action to:
(a) authorize or issue any additional equity securities
(including the issuance of shares other than the Conversion Shares in connection
with the Next Equity Round) or enter into any agreement or understanding with
respect thereto;
(b) declare or pay any dividends or distributions on or and
direct or indirect redemptions of any equity securities of the Company;
(c) make any loan or advance to any person, including, without
limitation, any employee or director of the Company or any subsidiary, except
advances and similar expenditures in the ordinary course of business and on
terms that are commercially reasonable or under the terms of an employee stock
or option plan approved by the Board of Directors;
(d) guarantee directly or indirectly, any indebtedness except for
trade accounts of any subsidiary arising in the ordinary course of business and
on commercially reasonable terms;
(e) (i) merge with or into or consolidate with any other
corporation or engage in any statutory share for share exchange, (ii) sell,
lease or otherwise dispose of all or substantially all of its properties or
assets, or any assets that are necessary for the conduct of the Company's
business, (iii) acquire all or substantially all of the properties, assets or
equity of any other corporation or entity, or (iv) dissolve, liquidate or wind
up the Company;
(f) incur any indebtedness or other liability other than in the
ordinary course of business and on commercially reasonable terms;
(g) amend any Charter Documents; or
(h) engage in any transaction which involves dealings between the
Company and its insiders or affiliates.
The restrictions of the Company under this Section 6.02 shall terminate
upon conversion of the Note pursuant to Section 7.01.
Section 6.03. Maintenance of Corporate Status. Maintain its corporate
existence in good standing under the laws of its jurisdiction of organization
and any other states or jurisdictions in which its failure to qualify as a
foreign corporation would have a material adverse effect on its operations or
financial condition.
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Section 6.04. Compliance with Charter Documents and Laws. Comply in all
material respects with its Charter Documents and other governing documents and
all applicable local, state, federal and foreign laws, rules, regulations and
orders.
Section 6.05. Discharge of Obligations. Pay and discharge all taxes,
assessments, and governmental charges lawfully levied or imposed upon it (in
each case before they become delinquent and before penalties accrue), all lawful
claims for labor, materials, supplies and rents, and all other debts and
liabilities that if unpaid would, by law, be a lien or charge upon any of the
asserts or properties of the Company or lead to suspension of the business of
the Company (except to the extent contested in good faith by the Company and for
which adequate reserves are established).
Section 6.06. Maintenance of Properties. Maintain all real and personal
property used in the business of the Company in good operating condition, and
shall make all repairs, renewals, replacements, additions and improvements to
those properties as are necessary or appropriate in the ordinary course of
business.
Section 6.07. Maintenance of Proprietary Information. Maintain all
confidential information and intellectual property, including all rights
relating to patents, trademarks, service marks, copyrights, tradenames, trade
secrets and other intangible rights, information and property (collectively the
"Proprietary Information"), and all applications and registrations therefor
owned or held by the Company, in full force and effect, except as otherwise
determined in the ordinary course of business. The Company shall not encumber or
license others to use its Proprietary Information owned by it except in the
ordinary course of the Company's business, and shall maintain the
confidentiality and trade secret status of all Proprietary Information that is
confidential except where disclosure is necessary to obtain copyright
registrations or patents, or is necessary or desirable in the ordinary course of
the Company's business. The Company shall enter into and maintain either an
Employment Letter or a Confidentiality and Inventions Agreement, in a form
approved by the Board of Directors, with each employee and, as appropriately
modified, each consultant to the Company who has or is likely to have as part of
their employment or association with the Company knowledge of the present
Proprietary Information and any future information that would be considered
Proprietary Information hereunder.
Section 6.08. Insurance. Maintain in full force and effect (a) adequate
insurance policies to protect its assets and businesses covering property damage
by fire, business interruption or other casualty, sufficient in amount to allow
it to replace any of its properties damaged or destroyed, and (b) insurance
policies to protect against all liabilities, claims, and risks against which it
is customary in amounts customary for companies similarly situated with the
Company. The Company shall name Holder as an additional insured under all such
policies.
Section 6.09. Books and Records. The Company shall keep proper books of
records and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company in accordance
with its existing practices.
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Section 6.10. Use of Proceeds. The Company shall use the proceeds from
the sale of the Note for working capital in accordance with its business plan or
otherwise as approved by the Board of Directors.
Section 6.11. Next Equity Round. The Company shall use its best efforts
to consummate the Next Equity Round on or before December 31, 1999 on terms and
conditions consistent with Article VII, below. The Company shall keep Holder
apprised of its progress and all negotiations with prospective investors.
Section 6.12. Further Assurances. The Company, at its expense, will
execute and deliver promptly to each Purchaser upon request all such other and
further reasonable documents, agreements and instruments in compliance with or
pursuant to its covenants and agreements herein, and will make any recordings,
file any notices, and obtain any consents as may be necessary or appropriate in
connection therewith.
ARTICLE VII
CONVERSION RIGHTS
Section 7.01. Conversion Upon Next Equity Round. The Company shall use
its best efforts to raise on or before December 31, 1999 $1,500,000 from persons
other than Holder in connection with the sale of Preferred Stock having rights
and preferences acceptable to the Holders of the Convertible Notes (as provided
in and subject to the prepayment provisions of Section 6.02(a) above) and
subject to the limitations set forth below (the "Next Equity Round"). Upon the
closing of the Next Equity Round, subject to the limitations set forth below,
the entire principal and accrued interest outstanding under this Note shall
automatically be converted, without any further action by the Company or the
Holder of this Note, into fully paid and nonassessable shares of the same type
and on the same terms (other than price) as are issued in the Next Equity Round
(the "Conversion Shares"). The rate at which this Note shall be converted shall
be the number of shares of Preferred Stock as would be issued in the Next Equity
Round for an investment equal to 120% of the then unpaid original principal
amount of the Note (the "Conversion Rate"). Upon conversion of the Note in
connection with the Next Equity Round, Holder's rights under this Agreement and
the Note shall be superseded by its rights with respect to the Conversion Shares
received in and as defined by the terms of the Next Equity Round.
Section 7.02. Rights and Preferences of Conversion Shares. The rights,
preferences and privileges of the Conversion Shares shall, unless the Holders of
Convertible Notes representing a majority of the outstanding principal amount of
the Convertible Notes otherwise agree in writing, provide for rights,
preferences and privileges that, at a minimum (i) are senior in right of payment
upon a liquidation or dissolution to the Series A, B and C Preferred Stock and
Common Stock, (ii) provide Holder with a liquidation preference equal to 120% of
the principal amount of the Note, and (iii) are pari passus with the rights of
the Series A, B and C Preferred Stock with respect to all other matters. In
addition, upon issuance of the Conversion Shares, the Company and the recipients
of the Conversion Shares shall enter into an agreement providing such Holders
with information, registration, participation, rights of first refusal and other
rights similar and on
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par with the rights granted to the investors in the Next Equity Round. In
connection with the Next Equity Round, the Company shall take all action
necessary to authorize a new series of Preferred Stock to be used both in
connection with the Next Equity Round and as Conversion Shares that are
consistent with the foregoing provisions and have been approved in accordance
with Section 6.02(a). Notwithstanding anything to the contrary herein contained,
unless the Next Equity Round is consummated on or before July 31, 2000, the Note
will not be convertible into equity of any kind.
Section 7.03. Method of Conversion. Subject to the foregoing
limitations, upon the closing of the Next Equity Round, Holder shall surrender
the Note to the Company, at its office designated as herein provided, and shall
give written notice to the Company at said office that Holder elects to convert
the Note and shall state in writing therein the name or names in which he wishes
the certificate or certificates for the Conversion Shares to be issued, which
shall be either Holder or an affiliate of Holder as to which all representations
and warranties of Holder shall be true. As soon as practicable thereafter, the
Company shall issue and deliver to the person for whose account such Note was so
surrendered, or to his nominee or nominees, certificates for the number of
Conversion Shares to which he shall be entitled as aforesaid, together with a
cash adjustment in respect of any fraction of a share if not convertible into a
number of whole shares. Subject to the following provisions, such conversion
shall be deemed to have been made as of the date of such surrender of the Note
to be converted, and the person or persons entitled to receive the Conversion
Shares shall be treated for all purposes as the record holder or holders of such
Conversion on such date. In no event nor under any circumstance may the Note be
partially converted. The Company shall not be required to issue fractional
shares of or scrip upon conversion of the Note. As to any final fraction of a
share which Holder would otherwise be entitled to receive upon conversion of the
Note in the same transaction, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the current market price of such
fractional interest based on the terms of the Next Equity Round.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. The occurrence of any of the following
events shall constitute "Events of Default" hereunder and under the Note:
(a) the Company shall default in the payment of any part of the
principal of the Note or any other Convertible Note or interest thereon or the
payment of any other amount due holders under the Convertible Notes or otherwise
for more than 5 days after notice that the same is past due and payable, whether
at maturity or by acceleration or otherwise;
(b) the Company shall default (as principal or guarantor or other
surety) either in the payment of the principal of, premium, if any, or interest
on any indebtedness for borrowed money, other than the Convertible Notes, having
a principal balance in excess of $25,000, or with respect to any of the
provisions of any evidence of indebtedness for borrowed money, other than the
Convertible Notes, having a principal balance in excess of $25,000, or any
material agreement related to either thereof, and the maturity of such
indebtedness shall have been
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accelerated so that the same shall have become due and payable prior to the date
on which the same would otherwise have become due and payable and such
acceleration shall not have been rescinded or annulled;
(c) any representation or warranty made by or on behalf of the
Company herein in connection with the transactions contemplated hereby shall
prove to have been false or incorrect in any material respect that would have a
material adverse effect upon the Company's ability to perform its obligations
under the Note or this Agreement on the date on or as of which made;
(d) the Company shall fail to comply in any material respect with
any covenants of the Company contained herein, in the Note or in the documents
governing the Series B Preferred Stock, and such failure to comply continues for
more than 10 days after receipt of notice of such failure;
(e) a court having jurisdiction shall enter a decree or order for
relief in respect of the Company in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee (or similar
official) of the Company for any substantial part of its property, or ordering
the winding up or liquidation of its affairs and such decree or order shall
remain unstayed and in effect for a period of 90 consecutive days; or
(f) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or similar law now or hereafter in effect,
shall consent to the entry of an order for relief in an involuntary case under
any such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee (or similar official) of the
Company for any substantial part of its property, or shall make any general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of
the foregoing; then and in any such event Holder may at any time (unless all
defaults thereto shall have been remedied) at its option, by written notice to
the Company, declare the Note to be due and payable, whereupon the same shall
forthwith mature and become due and payable without presentment, demand, protest
or other notice, all of which are hereby waived.
Section 8.02. Remedies on and Notices of Default. In case any one or
more Events of Default shall occur, Holder may proceed to protect and enforce
its rights by a suit in equity, action at law, or other appropriate proceedings,
whether for the specific performance of any agreement contained herein or in the
Note, or for an injunction against a violation of any of the terms or provisions
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law. The Company shall pay to Holder, upon demand, all expenses
incurred by Holder in connection with the collection of the indebtedness
evidenced by the Note after an Event of Default, the enforcement of this
Agreement or, the Note and in curing any defaults under this Agreement or the
Note, with interest thereon at the greater of 3% above the Prime Rate or 15% per
annum from the date incurred until paid.
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ARTICLE IX
MISCELLANEOUS
Section 9.01. Notices. Any notice, request, demand, statement,
authorization, approval, consent or acceptance made hereunder shall be in
writing and shall be hand delivered or sent by Federal Express or other
reputable overnight courier service, or by registered or certified mail, return
receipt. requested, postage prepaid and shall be deemed given (i) when received
at the following addresses if hand delivered or sent by Federal Express, or
other reputable overnight courier service, and (ii) three business days after
being postmarked and addressed as follows if sent by registered or certified
mail, return receipt requested:
If to the Company:
Molecular Innovations, Inc.
717 Yosemite Circle Denver, Colorado 80220
Attention: John H. Wheeler
with a copy to:
Holme Roberts & Owen LLP
1401 Pearl Street, Suite 400 Boulder, Colorado 80302
Attention: Paul E. Smith
If to Holder:
Ansys Diagnostics, Inc.
25200 Commerce Centre Drive
Lake Forest, California 92630.
Attention: Stephen Schultheis
with a copy to:
Smith, Silbar, Parker & Woffinden, LLP
19100 Von Karman Avenue
Suite 400
Irvine, California 92612
Attn: Lisa Welch Silbar
Each party may designate a change of address by notice to the other party, given
as provided above at least fifteen days before such change of address is to
become effective.
Section 9.02. Waivers. Holder may at any time and from time to time
waive any one or more of the conditions or provisions contained herein, but any
such waiver shall not be deemed to be, or construed as, a further or continuing
waiver of any such condition or provision.
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Section 9.03. Time of Essence. Time is of the essence of this Agreement
and all of its provisions.
Section 9.04. Binding Upon Successors. All agreements, covenants,
conditions and provisions of this Agreement shall inure to and bind the
successors and assigns of all parties hereto (except as otherwise prohibited by
this Agreement).
Section 9.05. Construction of Agreement. The titles and headings of the
Sections of this Agreement have been inserted for convenience of reference only
and are not intended to summarize or otherwise describe the subject matter of
such Sections and shall not be given any consideration in the construction of
this Agreement.
Section 9.06. Modification. This Agreement may not be modified, amended
or terminated, except by an agreement in writing executed by the parties hereto.
The Company acknowledges that this Agreement set forth the entire agreement and
understanding of Holder and the Company with respect to the purchase of the Note
by Holder and that no oral or other agreements, understandings, representations
or warranties exist with respect to the Note other than those set forth in this
Agreement.
Section 9.07 Severability. If any term, covenant or provision of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be construed without such term, covenant or provision.
Section 9.08. Governing Law. This Agreement shall be governed and
construed under the laws of the State of Colorado.
Section 9.09. Obligations Absolute. The Company acknowledges that no
oral or other agreements, understandings, representations or warranties exist
with respect to this Agreement or with respect to the obligations of the Company
under this Agreement, except those specifically set forth in this Agreement.
Section 9.10. Jurisdiction. The Company agrees to submit to personal
jurisdiction in the State of Colorado in any action or proceeding arising out of
this Agreement and, in furtherance of such agreement, the Company hereby agrees
and consents that without limiting other methods of obtaining jurisdiction,
personal jurisdiction over the Company in any such action or proceeding may be
obtained within or without the jurisdiction of any court located in Colorado and
that any process or notice of motion or other application to any such court in
connection with any such action or proceeding may be served upon the Company by
registered or certified mail to or by personal service at the address set forth
above whether such address be within or without the jurisdiction of any such
court. At the option of Holder, an action may be brought to enforce this
Agreement, the Note in the District Court in and for the County of Boulder,
State of Colorado, or in any other court in which venue and jurisdiction are
proper. The Company hereby consents to such venue and jurisdiction.
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Section 9.11. Waiver of Jury Trial. The Company hereby irrevocably and
unconditionally waives, and Holder by its acceptance of this Agreement
irrevocably and unconditionally waives, any and all right to trial by jury in
any action, suit or counterclaim arising in connection with, out of or otherwise
relating to this Agreement or, the Note.
Section 9.12. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
MOLECULAR INNOVATIONS, INC.,
a Delaware corporation
By: /s/ Jack H. Wheeler
----------------------------------
Name: Jack H. Wheeler
----------------------------------
Title: President & CEO
----------------------------------
ANSYS DIAGNOSTICS, INC.,
a California corporation
By: /s/ Stephen K. Schultheis
----------------------------------
Name: Stephen K. Schultheis
----------------------------------
Title: President & CEO
----------------------------------
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Exhibits and Disclosure Schedules to Convertible Note Purchase Agreement:
Exhibit A -- Form of Convertible Note
Exhibit B -- Financial Statements
Schedule 4.04 -- Capital Structure
Schedule 4.05 -- Financial Statements
Schedule 4.06 -- Absence of Changes
Schedule 4.09 -- Affirmation of Series B Preferred Stock Purchase
Representations and Warranties
ANSYS agrees to furnish to the Securities and Exchange Commission a copy of the
foregoing exhibits and schedules upon request of the Securities and Exchange
Commission.
<PAGE> 1
EXHIBIT 10.18
ANSYS DIAGNOSTICS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Ansys Diagnostics, Inc., a Delaware corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
one hundred and eighty thousand (180,000) shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to one half of one percent (0.5%) of the total number
of shares of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed seventy-five thousand (75,000) shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable by all Participants in the aggregate on any one Purchase
Date, (iv) the maximum
<PAGE> 2
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
2.
<PAGE> 3
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in
effect throughout the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than
one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the rate
of his or her payroll deduction by filing the appropriate form with the
Plan Administrator. The new rate (which may not exceed the fifteen
percent (15%) maximum) shall become effective on the start date of the
first Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed one thousand (1,000) shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization. In addition, the maximum
aggregate number of shares of Common Stock purchasable by all Participants on
any one Purchase Date shall not exceed thirty thousand (30,000) shares, subject
to periodic adjustments in the event of certain changes in the Corporation's
capitalization. However, the Plan Administrator shall have the discretionary
authority, exercisable prior to the start of any offering period under the Plan,
to increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in the aggregate by all Participants on each
Purchase Date during that offering period.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase Interval in which the purchase right
so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b)
have such funds held for the purchase of shares on his or her behalf on
the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service (x)
within ninety (90) days following the commencement of such leave or (y)
prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan
shall automatically resume at the rate in
5.
<PAGE> 6
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. An individual who returns to
active employment following a leave of absence which exceeds in duration
the applicable (x) or (y) time period will be treated as a new Employee
for purposes of subsequent participation in the Plan and must
accordingly re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into the offering period.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6.
<PAGE> 7
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on April 15, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE> 8
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in July 2009, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE> 9
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Ansys Diagnostics, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions).
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE> 11
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Ansys Diagnostics, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Ansys Diagnostics, Inc., which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 12
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 1999 Employee Stock Purchase
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be [JANUARY 31, 2000].
R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 (No. 333-72665) of our report, dated April 23, 1999,
relating to the consolidated financial statements of Ansys Diagnostics, Inc. and
Subsidiary. We also consent to the reference to our Firm under the captions
"Experts" and "Selected Consolidated Financial Data" in the Prospectus.
McGladrey & Pullen, LLP
Anaheim, California
April 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ANSYS
Diagnostics, Inc. and Subsidiary Consolidated Financial Statements as of
December 31, 1998 and is qualified in its entirety by reference to such Form S-1
Registration Statement of ANSYS Diagnostics, Inc.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,686,000
<SECURITIES> 0
<RECEIVABLES> 3,491,000
<ALLOWANCES> 20,000
<INVENTORY> 1,652,000
<CURRENT-ASSETS> 7,992,000
<PP&E> 6,197,000
<DEPRECIATION> 1,973,000
<TOTAL-ASSETS> 13,205,000
<CURRENT-LIABILITIES> 2,718,000
<BONDS> 1,842,000
0
0
<COMMON> 0
<OTHER-SE> 8,697,000
<TOTAL-LIABILITY-AND-EQUITY> 13,205,000
<SALES> 5,495,000
<TOTAL-REVENUES> 5,495,000
<CGS> 2,768,000
<TOTAL-COSTS> 2,768,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 1,495,000
<INCOME-TAX> 593,000
<INCOME-CONTINUING> 902,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 902,000
<EPS-PRIMARY> .46
<EPS-DILUTED> .15
</TABLE>
